NATIONAL

Key figures set to be summoned in diamond stock insider trading

By Korea Herald
  • Published : Jan 19, 2012 - 16:26
  • Updated : Jan 19, 2012 - 22:38
Prosecutors are expected to start summoning key figures implicated in a stock-manipulation scandal as early as next week.

Financial regulators on Wednesday filed a complaint with the prosecution against Oh Deok-gyun, head of CNK International, and his sister-in-law, an executive at the KOSDAQ-listed firm, over the stock rigging allegations.

The Securities and Futures Commission under the Financial Services Commission also asked the prosecution to investigate six other people including Cho Joong-pyo, former minister for the Prime Minister’s Office, over their alleged involvement.

In December 2010, Cameroon chose C&K Mining, the largest shareholder of CNK International, as a successful bidder to develop a diamond mine in the African state. Less than a month after the government announcement of the deal, CNK International’s stock price jumped fivefold.

Oh is suspected of distributing false information on the estimated volume of diamonds in the mine so as to boost his firm’s stock value. He allegedly raked in 80.3 billion won ($70.7 million) in the scam.

Cho handed Oh’s exaggerated estimate of the diamond volume to the Foreign Ministry, which then issued a press release based on it. Cho, who formerly worked as an adviser for the firm, is close to CNK head Oh because they share the same hometown of Cheongju in North Chungcheong Province.

Cho and his family members were purportedly offered the lucrative rights to 250,000 newly-issued shares of the firm ahead of the press announcement. They are said to have gained more than 500 million won in trading profits.

“Given the gravity of the issue, we will complete the process of assigning the case to a specific team within today and begin a full-fledged inquiry into the case,” a senior prosecution official told the media on Thursday.

Prosecutors are said to have asked the Justice Ministry to bar Oh and Cho from leaving the country.

An investigation unit specializing in financial and taxation affairs at the Seoul Central District Prosecutors’ Office is to take charge of the scandal, which has apparently dealt a major blow to President Lee Myung-bak’s drive for “resource diplomacy.”

Prosecutors plan to first focus on investigating key company staff involved in the scam and then expand their probe into others in the Prime Minister’s Office, the Foreign Ministry, the Ministry of Knowledge Economy and Korea Resources Corp.

The scandal, which initially focused on Kim Eun-seok, a suspended senior diplomat in charge of energy and resource diplomacy, has spread to other public organizations with a flurry of fresh allegations involving public servants.

Kim’s brother and the brother’s wife are suspected of having used insider tips to purchase stocks of CNK International worth 100 million won prior to the government announcement on the firm’s successful bid. Kim led the work on the press release.

The Board of Audit and Inspection completed its inquiry into the allegations involving Kim and others last December. It is to announce its probe result by the end of this month.

On Dec. 16, 2010, Cameroon offered the rights to C&K Mining to develop the diamond mine in Yokadouma in the southeast of the African country. Because of the potential economic benefits to Korea, Seoul government officials, including former Vice Minister of Knowledge Economy Park Young-joon, had helped the firm win the deal.

On Dec. 17, Seoul’s Foreign Ministry issued the press release, in which it said the mine held an estimated 420 million carats in diamonds. It also highlighted that the world’s annual production of diamonds was around 170 million carats in 2007.

After the announcement, speculation was triggered that the estimate was exaggerated, based only on unverified assumptions.

Amid growing allegations, the Foreign Ministry issued a statement in June in which it said the government in Cameroon officially recognized the diamond volume. It then brought the falling stock price of the firm back up.

Financial regulators said on Wednesday the estimate has been apparently inflated.

“Although the estimate was the result of CNK’s independent research on the diamond volume, it made the press release look as if the estimate had been based on the research result from the U.N. Development Program and Chungnam National University,” said the Securities and Futures Commission in a statement.

“(The firm) exaggerated the research result through ways including refusing to reflect an unfavorable result in it.”

Prosecutors will also investigate former Vice Economy Minister Park. He led a government-civilian delegation for resource diplomacy to Cameroon in May 2010. There, he called on the African country to support the firm’s bid. 


By Song Sang-ho
(sshluck@heraldcorp.com)