Two Credit Suisse staff indicted for stock fraud

Prosecution charges foreign brokerage workers for the first time; Kyobo Securities brokers also face trial


The prosecution said Sunday it had indicted two former employees of the Hong Kong branch of Credit Suisse Group AG on charges of manipulating Korean stocks.

It is the first time staff of a foreign investment bank have been indicted in Korea on such charges, though there was a similar case involving a U.K.-based equity fund in 2006.

The prosecution said it took several years to complete its investigation due to a variety of difficulties including summoning the suspects while the relevant trading was conducted in 2005.

Credit Suisse Hong Kong branch has been suspected of reaping about 23.6 billion won ($21.8 million) in gains by trading KOSDAQ shares in an illegal manner.

The prosecution claimed that the two foreigners committed the practice in collusion with several Korean stockbrokers of Kyobo Securities, who it said gained 3.4 billion won from the trading.

The colluders tempted 12 Korean companies registered on the KOSDAQ to issue convertible bonds worth 100 billion won, making a false promise that they would attract a group of foreign investors for the bonds.

As an exploitative promise for active investment, the Credit Suisse workers borrowed a huge portion of the 12 companies’ shares.

But as soon as the stock prices surged on the groundless rumor of active foreign investment, the alleged fraudsters dumped all of the shares.

According to prosecutors, the reported rule-violators could deceive Korean investors by handing out the borrowed shares to “bogus” foreign institutional investors.

Ultimately, a number of local investors suffered great losses and four out of the 12 companies underwent delisting.

The colluders are also suspected of seeking to evade regulatory crackdown by omitting significant facts during their report to the Financial Supervisory Service for the issuance of CBs.

The prosecution’s decision for indictment of foreigners in the securities industry is drawing wide interest, as the market is focusing its ongoing investigation into several foreign staff of Deutsche Bank AG.

Last November, Deutsche Bank reaped 44.89 billion won in gains through its massive sell orders minutes before the market closed, which caused the benchmark stock index to plunge 2.7 percent.

In 2006, British fund manager Hermes Investment Management was issued an indictment by the prosecution on charges of stock manipulation.

But it was acquitted of a fraudulent stock trading charge at court.

By Kim Yon-se (kys@heraldcorp.com)