The Financial Supervisory Service is making inquiries into CJ Group over the allegations the business group engaged in fraudulent stock trading, regulatory officials said Sunday.

According to the officials, the regulatory investigation is focused on whether CJ had conducted business practices that include stock manipulation or illicit use of insider information.

The probe was initiated on suspicion that CJ Chairman Lee Jay-hyun might have used slush funds secretly in borrowed-named, offshore bank accounts to purchase shares of the group’s domestic units and reaped a huge amount of profits in the process.

If it is true that he made profits by using offshore slush funds to purchase shares of his companies, this raises a possibility that he might have known such favorable undisclosed information as technology development and new business contracts in advance, and used them for the purpose of profit making, said an FSS official.

The authorities are also reviewing public stock disclosures by CJ affiliates to confirm any flow of suspicious foreign capital. The probe is based on the assumption that Lee might have disguised himself as a foreigner to invest in the domestic stock market if he really used the offshore slush funds.

The FSS’ investigation is being carried out separately from the prosecution’s tracing overseas bank accounts of CJ Group to secure evidence based on allegations that the local food and entertainment conglomerate amassed a massive slush fund offshore.

The conglomerate has been under an investigation on allegations that it managed a slush fund worth about hundreds of billions of won in total in foreign countries, including the British Virgin Islands and Hong Kong.

The prosecution recently imposed overseas travel bans on the family owners of the group, including CJ Group Chairman Lee, vice chairwoman Lee Mie-kyung and representative of CJ affiliates Lee Jay-hwan.

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