Top management of KDB Daewoo Securities, the No. 1 brokerage firm in Korea, is facing a crisis of credibility with a series of negative incidents and poor business performance.

Its unfavorable situation includes recent sanctions from the nation’s financial regulator for business irregularities and worsening operating performance, and is drawing market attention ahead of the upcoming annual meeting of the firm’s shareholders.

So far this year, the Financial Supervisory Service took punitive measures against the state-controlled KDB Daewoo Securities or its staffers three times, following two sets of sanctions on the firm in 2013.

According to the FSS, its misconduct included undermining investors by carrying out negligent audits on a Chinese company as its underwriter and financial transactions under borrowed names in violation of real-name account rules.

“The brokerage house carried out a lax audit on China Gaoxian Fiber Fabric Holdings when it took the brokerage role for the Chinese company’s local stock market listing,” said an FSS official.

The Chinese polyester yarn producer, which engaged in fraudulent accounting, was eventually driven out of the Korea Exchange. “KDB Daewoo failed to uncover the rigging as it did not conduct due diligence on the company’s 2010 financial statements,” the official said.

The FSS issued a warning against KDB Daewoo and reprimanded 13 executives and employees on March 12. Further, the Financial Services Commission, the decision-maker of the FSS, earlier levied fines of 2 billion won ($1.8 million) on the securities firm ― the maximum level under financial supervisory laws ― for the Chinese company case.

In January, the FSS said it revealed that the firm breached the real-name account transaction rules during its opening of a stock trading account from an official of a major conglomerate.

As a result, KDB Daewoo was slapped with fines of 50 million won and four of its staffers were subject to disciplinary measures.

The company was also found to have bullied a life insurance company during their co-insurance sales marketing, which has led to supervisory fines of 37.5 million won.

Its annual shareholders meeting is slated for March 25 at the brokerage house’s headquarters in Yeouido, Seoul. Market insiders are focusing on the future position of its chief executive, Kim Ki-bum, who took office in July 2012.

For the business performance segment, the firm reported an operating loss of 35.9 billion won and a net loss of 32.2 billion won, respectively, on its 2013 financial statements. Compared with a year earlier, its operating and net profit plunged 199.3 billion won and 175.9 billion won, respectively.

Company stocks of KDB Daewoo have been in a bearish mode: Its stock price, which posted 12,250 won per share on March 15, 2013, has stayed below 10,000 won since November 2013. Its shares closed at 8,100 won last Friday.

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