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FSS to sue Samsung employees

Watchdog will refer staff who sold shares to the prosecution
May 09,2018
Korea’s financial authorities will make a criminal complaint against those involved in Samsung Securities’ so-called fat-finger trading error to prosecutors this week, accusing them of embezzlement and breach of duty.

The Financial Supervisory Service (FSS) released the preliminary result of its investigation on Tuesday after Samsung’s brokerage unit mistakenly ordered 2.8 billion shares in a dividend payout plan for their employees last month.

It also found during the probe that Samsung SDS, an IT solutions affiliate from Samsung, dominates tech and digital system-related services at Samsung Securities, asking the Fair Trade Commission to look into whether the business tie between the two was fairly made.

“For now, we reported related employees to the prosecution,” said Won Seung-yeon, a senior deputy governor at the FSS.

“Later, the Financial Services Commission will decide penalties for Samsung Securities at a corporate level after discussions,” the deputy governor said.

The Financial Services Commission will also determine the punishment for the employee who made an input error and the boss who approved the decision.

The accidental issuance snowballed into a dispute over moral hazard in the financial industry as 22 employees tried to sell off a total of 12.08 million shares they received from the mistake. Still, only 16 people could offload some 5 million shares because the orders requested by six people were rejected, according to the FSS.

All of the 22 employees told investigators they tried to make the transaction out of “pure curiosity,” but the FSS decided to refer them to the prosecution based on trading records that hint at their intention of profiting from the mistake.

“Their transaction records show the 21 employees sold the shares on purpose, with a certain intention,” Won said, “But it doesn’t seem like they engaged in internal trading or market manipulation.”

In a separate charge, the Financial Services Commission (FSC) will fine the 16 people who ended up selling the dividend shares because the action disturbed the market.

The fine could range from 15 million won to 45 million won ($13,900 to $41,702), according to Rhee Yun-su, director at FSC’s capital market investigation unit.

The FSS pointed to the company’s poor internal control system as the main factor for not preventing the mistake.

In a normal employees’ dividend program, the company is supposed to first deposit dividends in a bank account held by the head of an employee stockholders’ association. The money is then distributed to each employee. But Samsung went straight to employees without putting money in the bank account.

The deputy governor also touched upon a controversy surrounding the watchdog’s ruling on Samsung BioLogics as committing accounting fraud to boost its appeal ahead of a planned initial public offering.

The biopharmaceutical company accused the FSS of unfairly making the decision and leaking important information during the investigation.

Won defended the decision, saying that the regulator didn’t reveal any details regarding BioLogics’ accounting conditions.


BY PARK EUN-JEE [park.eunjee@joongang.co.kr]