Securities dealers caught for backroom dealings

The prosecution has indicted and arrested a number of securities firm officials on charges of taking bribes in warrant bond issuance deals.

The Seoul Southern District Prosecutors’ Office, which has been investigating illegal deals in the financial industry since late last year, has indicted four executives and working-level officials of four local securities firms.

According the investigators’ findings the four securities dealers took bribes of as much as 830 million won ($717,000) for helping companies to issue warrant bonds and to find investors.

Warrant bonds are bonds that come with a warrant allowing the purchaser to buy new shares of the company that issue the bond at a previously agreed-upon price.

For investors, warrant bonds offer opportunity to profit from interest on the bond and from the new shares if prices increase.

However, warrant bonds issued by companies with unsound financial structure or poor performance could result in significant losses.

The indicted securities dealers acted as agents for the bond issuers in attracting institutional investors to purchase the warrant bonds.

With such practices said to be relatively common within the financial industry, authorities are reported to be reviewing plans to expand related investigations.

In addition, as many as five other securities firms may already be under scrutiny.

The four indicted include an executive vice president of a local securities firm identified by his surname Kim, who was found to have taken 187 million won for his role in a warrant bond issuance deal in 2009.

Kim took 100 million won for himself, and handed the remainder over to two brokers who connected him to the company that issued the warrant bonds.

Another executive identified by the surname Han, indicted on Dec. 28, was found to have taken 830 million won for similar transactions. The other two securities dealers under investigation are a 41-year-old surnamed Nam who holds a mid-level management position, and a 46-year-old man identified by the surname Kang. Nam and Kang have been indicted for taking 198 million won and 100 million won, respectively.

By Choi He-suk (cheesuk@heraldcorp.com)