Seoul, Aug. 27: A securities dealer bought $ 22 million worth of a company’s shares over the internet on Friday, using a stolen account number, sending shock waves through the Korean financial system.
The country’s top watchdog agency, the Financial Supervisory Commission, urged financial companies on Monday to impose stringent controls on passwords and to bolster their internal control systems. It vowed to punish those whose systems failed to meet the improved security standards.
Daewoo Securities, the country’s fourth-largest financial firm, acknowledged that one of its dealers had placed the order for the shares of the Delta Information and Communications Co. on Friday. The company is listed on Kosdaq, the over-the-counter exchange that is dominated by small and medium-size high-tech companies.
The ease with which the dealer carried out the trade exposed a weakness in the country’s fast-growing reliance on the internet for carrying out transactions on the Korea Stock Exchange, the major vehicle for listing companies, and on Kosdaq, a small exchange modeled after the Nasdaq.
Nearly two-thirds of all trading in Korea is done over the internet, the highest proportion anywhere in the world, as investors capitalize on fees that are typically far lower than they would pay for telephone or paper transactions through brokers.
In this case the dealer, who was not identified, made the trade in one of the thousands of internet cafes and PC rooms that have sprung up in recent years in nearly every city and town in the country.
According to the Financial Supervisory Commission, he used the password and registration number of another major company, the Hyundai Investment Trust Co.—which is affiliated with Hyundai Securities, a Daewoo rival—to buy 5 million shares of Delta stock within 90 seconds shortly after 10 a.m. Friday.
The purpose apparently was to drive up the value of Delta stock, which rose by 7.2 per cent soon after the order was placed. It fell by the maximum Kosdaq limit of 12 per cent on Monday after the deal was revealed as fraudulent.
The deal was also largely responsible for a 6 per cent drop in share prices of Daewoo Securities on the Korea Stock Exchange and may have further damaged efforts to sell the firm, which has been in the hands of creditors since the collapse of the Daewoo group in mid-1999. The dealer who made the trade was reported to have fled the country, leaving Daewoo responsible for repaying the cost of the shares.