Stock market analyst accused of engaging in market manipulation

A security analyst who purchased shares of a specific company under the name of another person and published a report recommending investors to buy the same shares was accused of gaining profits from there and sent to the prosecution for further investigation. The Fair Trade Commission figured out that the said analyst completed 67 transactions of 22 stocks for 10 years until 2022 and gained 520 million won in profits from selling off shares. The analyst changed firms three times during that period and was chosen as the best analyst a few years ago. It was akin to putting a wolf in charge of guarding the sheep.

The recent spate of market manipulation cases highlights that the Korean stock market fails to live up to its reputation as the world’s 10th largest. Even more concerning is that unlike the director of an unregistered investment consulting firm or the leader of an online stock community responsible for the recent stock market crash, the analyst in question holds an official role within the stock market. By leveraging the impact of his report to manipulate stock prices and profit from it, he neglected the ethical responsibilities expected of a stock analyst, including investor protection and adherence to principles of good faith.

The current state of the stock market in Korea is rife with falsehoods and deceit, as even reports released by reputable security firms are intentionally misleading. The issue lies partly with the excessively lenient punishments in comparison to more advanced countries. Over the past three years, out of the 57 defendants found guilty of unfair trade practices such as undisclosed information usage, market price manipulation, and fraudulent transactions, only 28 percent, that is, 14 individuals, received actual sentences instead of suspended punishments. Of the 69 defendants in the second instance trials, 36 were handed lighter sentences than their initial trials, while only three received heavier punishments than in the first.

Despite the explicit declarations from the financial authority and the prosecution of severe punishment for even a single episode of stock price manipulation, the amendment bill of the Capital Markets Act, which proposes penalty surcharges ranging from twice the amount of unlawful gains up to 5 billion won, remains pending at the National Assembly Legislation and Judiciary Committee because of the opposition of some lawmakers, citing concerns about the complexities involved in calculating unfair gains and excessive legislation.

The lenient penalties for stock price manipulations contribute to a higher risk of repeat offenses. As the Securities and Futures Commission reported, out of the 643 individuals reported to law enforcement agencies for engaging in unfair trade practices over the past four years, 149 individuals, accounting for 23.2 percent, had prior records of similar offenses. Unless these individuals are effectively identified and removed from the market, the reputation of the Korean stock market will continue to remain in a low-grade state.