Two Overseas Firms Are Now Indicted For Naked Short Selling

October 16, 2024

Updated on November 4, 2024

Two overseas firms are now indicted for naked short selling by Korean prosecutors, the latest move to stamp out the illegal practice.

Prosecutors have charged two overseas investment firms with naked short selling as part of the government’s efforts to eliminate this illegal practice.

On Tuesday, the Seoul Southern District Prosecutors’ Office announced that a global investment bank, along with an overseas asset manager and a trader from that firm, have been indicted for violating the Financial Investment Services and Capital Markets Act.

The two firms reportedly profited approximately 22 billion won (around $16 million) through illegal short selling activities.

The global investment bank allegedly engaged in short selling of stocks worth 18.32 billion won between September 2021 and May 2022 without borrowing the required shares first.

Prosecutors indicated that the firm’s traders were repeatedly informed of insufficient stock account balances at settlement times, yet they continued to conduct short sales, which constitutes intentional naked short selling.

The firm allegedly overlooked these recurring illegal actions despite being aware of them.

Additionally, the indicted trader is accused of manipulating the stock price of SK hynix in 2019, resulting in a gain of 3.57 billion won.

The trader allegedly lowered the stock price to benefit from a block deal that was being negotiated at the time, while also profiting from naked short selling.

The asset manager is facing charges for failing to prevent the trader’s misconduct.

Naked short selling, which involves selling shares without having borrowed them, is illegal in many countries, including South Korea.

To combat this issue, the Korean government imposed a temporary ban on all short selling in November and extended it to March 2025 after discovering illegal short selling activities among global investment banks.

During a cabinet meeting on Tuesday, President Yoon Suk Yeol reiterated his commitment to implementing a stricter system to prevent naked short selling.

He stated that the forthcoming monitoring system and tougher regulations would help “level the playing field between institutional and retail investors and significantly increase penalties for illegal short selling and unfair trading practices.”

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Also Read: Illegal Short Sellers Will Now Face Life Sentence In Prison

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