Korea's National Tax Service has launched a second round of tax investigations targeting 31 companies accused of stock manipulation, tunneling, and running illegal trading chat rooms, the agency said Thursday.
The probe comes as Korea's benchmark KOSPI index has entered the 7,000 era, yet retail investors continue to suffer losses from market-disrupting players. The investigation targets tax evaders who siphoned technology and profits from blue-chip companies to overseas entities controlled by owners, or intentionally led firms to delisting. The agency conducted its first round of investigations in July last year.
The probe aligns with the sovereign government's policy goal of "realizing the Korea Premium," which focuses on encouraging long-term domestic stock investment and establishing fair market order. Tunneling refers to the practice of diverting corporate assets or profits to benefit specific individuals, such as owner families.
11 Firms Probed for Inflating Stocks via False Disclosures, Dumping on Retail Investors
Eleven stock manipulation firms are under investigation for inflating share prices through false information and window dressing, then offloading their holdings onto minority shareholders.
Stock manipulators acquired listed Company A and spread false disclosures suggesting the firm would enter new businesses such as renewable energy. They fabricated business activity using fake tax invoices and wired hundreds of billions of won to local entities of unclear operational status, drawing in individual investors.
As the share price rose, the speculators reaped enormous capital gains. But the massive volume they dumped onto the market caused the stock to plunge, leaving small investors with heavy losses. The investigation also found that Company A transferred a luxury housing subscription right to its CEO free of charge, treating the down payment and interim payments as corporate expenses to misappropriate funds.
Other firms caught in the probe lured general investors with false claims such as "entry into new businesses" or "imminent listing," similar to the Company A case. They then sold shares purchased in advance through paper companies or nominee accounts to generate capital gains while evading taxes.
In some cases, stock manipulators acquired companies with solid operating performance and deliberately withheld documents during the audit process, ultimately leading to delisting.
More than half of the listed companies under investigation had their stock trading suspended due to reasons such as disclaimer of opinion from external auditors. Some firms' share prices plunged by up to 90%.
15 Firms Probed for Diverting Company Funds to Owner Families
Fifteen firms that created channels for fund outflows within their transaction structures to divert profits or assets to owner families are also under tax investigation.
Company B invested hundreds of billions of won in a fund managed by an acquaintance of the owner with no investment experience. Through that fund, the firm then acquired convertible bonds of a troubled company controlled by the owner, improperly diverting corporate funds.
Company C funneled business to a firm established by the owner's spouse, then siphoned company funds through fictitious transactions with a nominee corporation set up by the spouse using a proxy.
Cases were also found in which listed companies transferred future growth drivers, such as business opportunities or prime assets, to firms controlled by owner families, damaging corporate value.
Such operation of listed companies as personal property also affected share prices. While the KOSPI rose 188% and the KOSDAQ climbed 85% over the past year, the share prices of companies under investigation gained only 65%.
5 Trading Chat Rooms Caught Luring Members with "300% Surge" Promises
Five illegal trading chat room operators are also under investigation for evading taxes through falsely recorded expenses and fraudulent tax invoices, despite generating large profits by inducing high-priced membership subscriptions.
After gaining fame through media such as YouTube, they approached financially vulnerable groups including young professionals with limited investment experience and elderly investors. They then promoted stocks using provocative phrases such as "recommended stocks up 300%" and "100% guaranteed returns within three days."
Some operators accumulated shares before announcing their recommendations, pushed up prices, then sold their entire holdings to reap massive capital gains. Members suffered losses totaling tens of billions of won in the process, the investigation found.
After generating large profits from paid memberships and capital gains, some operators also evaded tax obligations by diverting earnings to corporations set up under the names of company executives.
"We will thoroughly tax these companies by verifying not only their market-disrupting activities but also all related parties and transaction activities involved in the process," the National Tax Service said. "We will work to firmly establish the awareness that not a single won can be gained through unfair trading in the stock market, and that such practices instead return as a greater tax burden."
