The U.S. investment banking giant Goldman Sachs could face a fine of up to 2 billion won ($1.76 million) by the South Korean financial authorities for conducting more than 100 naked short selling transactions banned by the Korean law.
This would be the biggest fine to be slapped for a financial institution in short-sale transactions in the country.
According to sources from the investment banking industry on Tuesday, the financial authority decided to impose a 2 billion won fine on Goldman Sachs for illegally shorting more than 100 local stocks on May 30, and will submit its finding to the top decision-making Securities & Futures Commission of the Financial Services Commission (FSC) within this week.
In earlier investigation by the Financial Supervisory Service, the Seoul branch of Goldman Sachs arranged over 350 short-selling orders from Goldman Sachs International, its British branch, and went short on 20 local stocks - three listed on the Kospi and 17 on the Kosdaq. It however did not deliver shares on time and left short sellers “naked” amounted to 1.38 million shares worth 6 billion won on May 30.
The regulator in further probe discovered over 100 cases of naked short-selling attempts by the investment bank. Naked short selling, or making short order without stock inventory, has been banned since 2008.
Right after the delivery failure, Goldman Sachs International announced that it executed a short sale for the outstanding 19 shares and vowed to take over the remaining one a few days later. It claimed at that time that the delivery failure was an order error, not an international move.
Although the 2 billion won fine is the largest-ever penalty for short sale violation in the country, critics say that it is just a slap on the wrist. An official from the financial authority said it plans to revise the current capital market law to ensure short-sale violators face up to 10 years in prison or penalty equivalent to 150 percent of the ill-gotten gains. He also added that the FSC could impose a much heavier fine on Goldman Sachs.
By Jin Young-tae and Choi Mira
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]