Stocks and TV

The stock market is flooded with information. Share prices fluctuate due to groundless rumors and investors ride an emotional rollercoaster. Individual investors, who are generally behind large institutional investors in data, always look for tips or other information. While one side makes money in the stock market, the other loses it. Such a harsh jungle is ruled by a zero-sum game.

In the late 1990s, the media was shocked by stock information. Before writing a story that a company developed new technology, a journalist bought the company’s stocks. As the stock price skyrocketed shortly aftewards, it came under the radar of the Securities Supervisory Service (now the Financial Supervisory Service) in Korea. The journalist was convicted and sent to prison for having information that could potentially impact stock purchases before a news article is released. Today, people say it is too late if one buys stocks based on information in newspapers because data is rapidly spread on the Internet. Back then, however, news articles significantly affected stock prices.

Many stock analysts inform institutional investors of what to buy before they release their reports to individual investors. When individual investors get the reports at the customer lounge of a brokerage, institutional investors have already bought the recommended stocks. By doing so, securities companies can kill two birds with one stone. As stock brokers, the companies can get a positive feedback from institutional investors, who buy a large portion of stocks, and also see stocks rise when individual investors buy them later. In the U.S. and other developed economies, strict punishment is applied if stock recommendation reports are released with a time lag.

A 34-year-old stock expert was prosecuted for allegedly raking in illegal profits. Often appearing on TV stock programs, he bought 76,704 shares worth 3.09 billion won (2.92 million U.S. dollars) before recommending AhnLab Inc. on a program, and pocketed 2.31 billion won (2.18 million dollars). He bought the stock first and then recommended it a TV program watched by many individual investors. When AhnLab`s stock rose, he sold his shares. He is said to have taken rewards from an investor who asked him to boost the share price. A rumor has spread that experts on TV programs on stocks often take illegal gains by purchasing stocks in advance. This was confirmed by a criminal investigation. Prosecutors said they will apply “comprehensive fraud” charges given the lack of provisions that punish such illegal activity in the Capital Market Act. Then it might be difficult for the court to hand out strict punishment. The Financial Services Commission, which supervises the capital market, should amend the system with a loophole. The securities industry claims that this should be an opportunity to root out the illegal connection.

Editorial Writer Choi Young-hae (yhchoi65@donga.com)