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Photo = Yonhap news |
[Alpha Biz= Reporter Kim Sangjin] Prosecutors have launched a large-scale raid on securities firms as part of an investigation into the alleged 'bond rolling' scheme. On the 16th, the Financial and Securities Crime Investigation Division of the Seoul Southern District Prosecutors' Office announced that it had raided eight securities firms: Hyundai Motor Securities, BNK Investment Securities, Yuanta Securities, Hanyang Securities, Eugene Investment & Securities, Bukook Securities, iM Securities, and Daol Securities.
Prosecutors are said to have secured transaction records with nine other securities firms suspected of engaging in the 'bond rolling' scheme, including Mirae Asset Securities, Korea Investment & Securities, NH Investment & Securities, KB Securities, Hana Securities, Kyobo Securities, Yuanta Securities, Eugene Investment & Securities, and SK Securities.
The nine firms under investigation are suspected of disrupting the market during the redemption process of wrap accounts and specific financial trusts following the "Legoland Crisis," which caused a credit crisis in September 2022 after Kim Jin-tae, the Governor of Gangwon Province, announced the corporate rehabilitation of the developer of the Legoland project.
Following the Legoland crisis, some securities firms failed to properly manage short- and long-term funds, leading to delays or suspensions in redemptions. Allegations arose that certain firms used company assets to compensate customers for investment losses. The Financial Supervisory Service (FSS) conducted checks and revealed that some firms had engaged in illegal self-dealing to transfer profits and losses between client accounts in order to meet the target returns for maturing accounts.
For instance, one securities firm, A Securities, sold commercial paper (CP) in a customer's maturing account to B Securities at a price higher than market value. In return, B Securities bought similar CP at an inflated price from A Securities' account of a customer whose account had not yet matured. This process was repeated to ensure that the principal and target returns were met at the time of contract maturity or when a customer requested redemption. The amount of losses transferred through these transactions is reportedly in the trillions of Korean won.
The FSS has informed the prosecutors of these actions, which could involve breaches of fiduciary duty by securities firm operators. Additionally, the FSS imposed some business suspensions on KB Securities and Hana Securities on June 27 as part of its regulatory actions.
AlphaBIZ Kim SangJin(letyou@alphabiz.co.kr)
