Prosecutors Investigate Stock Manipulation Scheme

The Seoul District Public Prosecutors’ Office Special Department One (Chief prosecutor, Ju Chul-hyun) revealed on July 9 that they had found a staff member of the Military Mutual Aid Association was linked to a stock price manipulation scheme, and the office started an investigation into the case. The main financial investment office of the MMAA in Dogok-dong, Gangnam-gu is being confiscated and searched due to its association with the case.

The prosecutors’ office arrested a staff member of the MMAA’s main financial investment office, identified as Kim, for receiving 400 million won from a man identified as Lee, the president of RBA, which is a corporate restructuring specialist company.

Mr. Kim received the money in exchange for the MMAA’s purchase of 7 million Tongil Heavy Industries stocks at 1,000 won from the RBA for a total of seven billion won. The Tongil Heavy Industries stocks were issued in March 2003 for a face vale of 500 won.

The prosecutors’ office is expanding the scope of investigation to the overall investment activities of the MMAA for following reasons: four hundred million is a conspicuously large amount for an individual to be paid. The MMAA usually goes through a decision process by the board members for such large investments. Thus, prosecutors see a strong possibility that the MMAA participated in this case on an organizational level.

According to the investigation, RBA bought 24 million Tongil Heavy Industries stock shares at 500 won each when the new stocks were issued in March of last year when Tongil Heavy Industries was going through a court-ordered change in management.

Then RBA sold seven million stocks at 1,000 won per share to the MMAA and manipulated the price of the 17 million shares left.

RBA is reported to have assured the MMAA that, “Tongil Heavy Industries stocks will never fall under 1,000 won and if that happens, we will compensate you for the loss,” while they were persuading the MMAA to buy the stocks.

The prosecutors’ office has previously arrested two people, the president of RBA, Mr. Lee and an executive, identified as Yim, for violating the Securities Exchange Act.

Jin-Young Hwang buddy@donga.com