Reporters, investment adviser indicted for front-running scheme that netted W8.55b

The head of an investment advisory firm and several current and former reporters at financial news outlets have been indicted for front-running shares using "notable stock" articles, reaping more than 8.5 billion won ($5.8 million) in illicit gains. A separate reporter at a financial newspaper who carried out front-running alone by exploiting his article-publishing access was also indicted.

The Seoul Southern District Prosecutors' Office's Financial Investigation Unit 2, led by chief prosecutor Kim Tae-gyeom, announced Wednesday that it had indicted seven people on charges including violations of the Capital Markets Act and breach of trust. The suspects — identified as A, the head of an unregistered investment advisory firm with a background as a certified accountant, along with reporters from financial media outlets — allegedly conspired to front-run shares using notable-stock articles, netting about 8.55 billion won in illicit profits. A and two of the reporters will stand trial in detention.

Reporter H, who operated separately from the group and allegedly earned about 740 million won in profits through front-running on his own, was indicted in custody on charges of violating the Capital Markets Act and the Act on Regulation and Punishment of Criminal Proceeds Concealment.

According to prosecutors, A's ring carried out systematic front-running using a total of about 1,800 notable-stock articles over roughly four years and eight months, from October 2020 through June last year.

The group would select small- and mid-cap stocks and theme stocks with low trading volumes or high share price volatility, buy them in advance, and then distribute articles through various outlets covering those stocks as "notable." The scheme exploited the fact that such articles spread in real time to investors through brokerage trading platforms and news portals, directly influencing market prices. Once the notable-stock articles were published and retail investors began buying in, driving share prices higher, the ring would sell its holdings to pocket the gains.

Prosecutors believe the group obtained a total of about 8.55 billion won in illicit profits through this scheme.

The scheme began when A, the former accountant, conspired with reporter C, a financial journalist he already knew. The network then grew as more participants were brought in through referrals. A recruited reporters B, D and F one by one, offering 300,000 won per article. Reporter B then brought in reporter E, bringing the total number of financial journalists involved to five, prosecutors said.

During follow-up investigations, prosecutors also confirmed that substantial sums of cash had changed hands in exchange for publishing the articles, constituting breach of trust and violations of the Anti-Graft Act. Reporters E, D and F each received between 28 million won and 150 million won from ringleader A. To conceal the transactions, they used A's physical debit card to withdraw cash directly from ATMs or collected cash left in gym lockers.

Reporter H, who acted alone, bought shares in specific stocks before publishing his own articles about them, then sold after prices rose following publication. He also faces charges of concealing about 550 million won in criminal proceeds by using nominee brokerage accounts held in acquaintances' names to evade detection by financial authorities.

Prosecutors took over the case from the Financial Supervisory Service in June and conducted follow-up investigations, including re-interviewing witnesses, analyzing Telegram conversations and carrying out search-and-seizure operations at media outlets. In the process, they confirmed that some reporters had received cash in exchange for distributing notable-stock articles, leading to the additional detention of reporters B and E.

Some suspects rushed to dispose of real estate or transfer assets into their spouses' names after the search-and-seizure operations. Prosecutors, viewing this as an attempt to evade asset forfeiture, filed additional preservation orders on newly acquired real estate and financial assets and pursued procedures to recover the criminal proceeds.

"We will respond sternly to financial and securities crimes that disrupt the stock market, and will track down and strip away criminal proceeds to the very end," a prosecutor said.