Securities firm insiders traded on tips, pocketed hundreds of millions in illicit gains

Two former employees of a major domestic securities firm have been indicted for trading on material non-public information related to stock tender offers and for buying and selling that information.

The Seoul Southern District Prosecutors' Office said Thursday that it had indicted the two former employees, identified only as A and B, on charges of violating the Capital Markets Act and the Act on Aggravated Punishment of Specific Economic Crimes.

According to prosecutors, A handled tender offer transactions at a large securities firm and used inside information on tender offers involving three listed companies that he learned through his work. From January 2023 to February 2024, he bought shares in those companies ahead of public announcements and sold them once the tender offer information was disclosed, netting 97 million won ($71,500) in illicit gains.

During the scheme, A used a nominee account held in a relative's name and had a family member execute trades on his behalf in an effort to conceal his identity, investigators found.

B, who had been A's supervisor at the securities firm, repeatedly pressured A for inside information even after leaving the company, according to prosecutors. B received tender offer information on the same three listed companies from A, then bought shares through accounts held in his own name and his child's name, selling once the information became public. He is accused of reaping 287 million won in illicit gains through the scheme.

The share prices of the three companies rose an average of 12.2 percent immediately after the tender offer information was disclosed, with one stock climbing as much as 14.65 percent.

Prosecutors found that B drew on his experience and knowledge from working in the securities industry to instruct A on how to obtain non-public information, actively pushing him to carry out the scheme.

The investigation was launched after the Financial Services Commission filed a complaint against A and B over their use of non-public information. Prosecutors traced how the two exchanged tips and in the process uncovered evidence of cash transactions as well.

B is accused of providing A with a total of 25 million won in cash, along with entertainment at upscale bars, in exchange for the inside information.

B also faces charges of passing the information he received from A to three additional people, including a college alumnus identified as C, enabling them to collectively pocket 2.3 billion won ($1.7 million) in illicit gains. The FSC plans to impose fines on those three individuals.

Prosecutors estimate that A and B together obtained a combined 384 million won in illicit gains from trading on non-public information.

After the FSC probe began, A and B replaced their mobile phones and computers in an apparent attempt to destroy evidence. Prosecutors nonetheless secured messages and other relevant evidence through search and seizure operations and digital forensics, confirming not only the use and transmission of non-public information but also the exchange of cash.

Prosecutors have also moved to recover the proceeds of the crime, filing for pre-indictment confiscation orders in coordination with the office's criminal proceeds recovery unit.

"We will respond firmly to crimes that undermine the order of financial and capital markets, including the use of inside information and the receipt of bribes by employees of financial institutions," a prosecutor said.