April 20, 2024

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[THE INVESTOR] Korea’s financial watchdog on May 8 said Samsung Securities and some of its employees will face severe penalties for last month’s “fat finger” error.

The Financial Supervisory Service announced this after wrapping up a one-month investigation on Samsung Securities’ dividend payout mistake in which the brokerage mistakenly deposited 2.8 billion non-existent company stocks in employee accounts, although it is still mulling the level of penalties. 

Won Seung-yeon, senior deputy governor, capital markets and accounting, of the Financial Supervisory Service talks during a press conference on May 8. Park Ga-young/The Investor

“This is a huge financial disaster that hurt the credentials of the capital market, so we tried our best to identify the root of the problem,” Won Seung-yeon, senior deputy governor, capital markets and accounting, told the press on May 8.

FSS noted the security company’s insufficient internal system, a majority of which is operated by a Samsung affiliate. “The biggest issue we found, among others, is that the basic trading system had a problem and the system allowed transactions of non-existent company stocks,” Won said. He noted that FSS will expand its investigation to other securities firms to see if they have a proper internal controlling system.

Unfair links among affiliates of conglomerates could be behind the problem, according to FSS. Even though the country’s fair trade regulations ban companies from giving orders unfairly to an affiliate, a total of 72 percent worth 251 billion won (US$232 million) of the total outsourcing contracts, is operated by affiliate Samsung SDS. FSS said it has referred the issue to the Fair Trade Commission for further investigations.

Meanwhile, the employees who sold the stocks they falsely received claimed they sold them out of curiosity, but the investigation found that 21 employees traded stocks with an intention to make a profit from the mistake. But FSS said it found no evidence that the sale was linked with a plot to manipulate the market. The regulator said it will file professional negligence and embezzlement charges against the employees.

By Park Ga-young (gypark@heraldcorp.com)