The financial regulator has launched a full-fledged investigation into alleged stock manipulation via cable TV channels, Internet broadcasters and cyber communities.

Allegations that investment advisors engaged in stock manipulation recently emerged, an official at the Financial Supervisory Service said.

He said the FSS has already begun investigating several cases while Korea Exchange is also closely monitoring the allegations.

Stock fraudsters have reportedly enjoyed huge gains by dumping shares when some broadcasting channel figures recommend particular shares in an alleged bid to push up prices.

Manipulation via public spaces such as TV channels or the Internet is regarded as a new practice while past cases included low-key collusion among specialized scammers.

Korea Exchange has focused on the practices by unregistered investment advisory firms in cyberspace. Well-known figures have attracted a number of retail investors by touting particular stocks.

Typical stock price rigging involves majority shareholders of listed firms spreading unfounded rumors to boost share prices, encouraging investors to buy stocks. When the price goes up, the manipulators sell the shares to realize huge capital gains. But the investors sustain huge losses from the falling share price afterwards.

Large shareholders and those who are well-connected also purchase certain shares on insider information. Stock prices surge when the information is made public. They then cash out their investment and make handsome profits.

FSS officials said the newly-established unit will place priority on examining a host of major unfair stock trading in the past. It will also closely cooperate with the Korea Exchange, prosecutors and other law enforcement authorities to probe irregularities more effectively.

An FSS official said regulators need a search and seizure warrant or to freeze bank accounts of those suspected of manipulating stock prices and other irregularities at an early stage of the investigation.

He said the FSS will do everything in its power to prevent investors suffering from losses by preemptively probing possible stock price rigging and taking measures in advance.

To strengthen monitoring and punishment of those involved in unfair stock trading, the regulator plans to introduce a scheme to take back profits gained illegally, and confiscate suspects’ phone records and IP addresses.

By Kim Yon-se (kys@heraldcorp.com)