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Quasi-Investment Consultants Proliferating

Posted February. 09, 2007 06:46,   


“Stock investment? Of course, I can do it in your name”

“Aren’t consignment sales and purchases illegal?”

“As long as we report the results of sales and purchases to customers, the supervisory authorities don’t say anything.”

It has been recently confirmed that a majority of quasi-investment consultants who cannot sell and buy stocks with customers’ funds have been illegally making consignment sales and purchases. A quasi-investment consultant is an advisor who provides securities-related information to general investors through the Internet, ARS, and publications.

According to the Financial Supervisory Commission’s report titled “The present state and cautions of quasi-investment consultants obtained by Dong-A Ilbo on February 8, the number of these investment consultants has increased to 125 as of late January this year, which is 20 more than in March 2006.

As many of them are involved in illegal activities such as consignment sales and purchases, it is worrisome that investors could incur losses because of this.

Anyone can open a quasi-investment consultant business if they report to the Financial Supervisory Commission. But, it is prohibited to invest money that customers have entrusted or consult with customers about securities in person.

However, in reality, there are many quasi-investment consultants that do so, said the Financial Supervisory Commission (FSC).

The number of quasi-investment consultants was only 28 right after the financial crisis in 1999, but it surged to 209 in 2000 when the stock market boomed.

After the IT and Internet-related bubbles burst, the number of these informal consultants decreased to around 100, but after the KOSPI (Korea Composite Stock Price Index) reached the 1,400 mark, it started to increase.

However, 13 of 125 quasi-investment consultants that were reported to the FSC cannot be tracked down and it is not clear whether they are engaged in normal business.

An insider of the financial circle said, “It is possible that quasi-investment consultants which you cannot contact, made use of customers’ money and disappeared.”

It has turned out that many quasi-investment consultants have been engaged in illegal activities such as consignment sales and purchases, one-on-one investment consultations, ROI (return on investment) guarantees, and price manipulation.

When our reporter made a call to a quasi-investment consultant in Yeongdeungpo-gu, Seoul, and asked if he could invest the reporter’s money in his name, the advisor said it was possible and put him through to a person in charge of investments.

The person, who introduced himself as a manager in charge of investments at “A” securities, boasted that it was possible to produce a high ROI because sales and purchases were made based on various chart analyses and trends.

When asked how much the commission was, he said, “I cannot receive a commission as a person who gets paid from securities. But you can give part of profits as a commission or a fixed rate of trust money. Why don’t we decide that when we write the contract?

Quasi-investment consultants use money gathered in that way as fund to practice unfair trade strategies, such as price manipulation.

In November 2006, a representative of a quasi-investment consulting business got arrested for artificially raising stock prices of a company listed on the KOSPI with funds collected from unspecified persons.

The securities industry estimates that there are more quasi-investment consultants that do not report to the FSC and do business illegally than those that have been reported.

That means that illicit activities such as consignment sales and purchases are going on without supervision.

Park Won-ho, director of the asset management supervision department at the Financial Supervisory Commission, said, “We will continue to report illegal businesses to the police and watch advertisements which dazzle investors, but if regulations are strengthened too much, quasi-investment consultants could go outside the law and out of control.”