'Stock price inflated 14-fold': Youngpoong Paper beneficial owner sentenced to three years in prison at first trial; fined KRW 243 billion

[Financial News] The beneficial owner of Youngpoong Paper was sentenced to prison at trial for participating in market manipulation that drove the company's stock price up roughly 14-fold in one year.
The 12th Criminal Division of Seoul Southern District Court, presided over by Judge Park Jong-ryeol, sentenced Gong Hyun-cheol on the afternoon of the 30th to three years in prison and a fine of KRW 243 billion for violating the Financial Investment Services and Capital Markets Act. The court also ordered the forfeiture of KRW 7.47 billion in funds provided for market manipulation.
A co-defendant identified only by the surname Kim was sentenced to 18 months in prison, suspended for three years, and fined KRW 100 million. The court sentenced another person surnamed Kim to three years in prison, suspended for five years, and ordered the forfeiture of KRW 26.4 billion.
Gong was indicted on allegations that, during the acquisition of Youngpoong Paper, he conspired with Lee Jin-hoon, who allegedly led the stock-manipulation organization, and others to provide funds for market manipulation. He was also accused of obtaining about KRW 780 billion in illicit gains between October 25, 2022, and October 17, 2023. The group used 444 accounts to place manipulation orders more than 230,000 times. Investigators found that the stock price rose from the KRW 3,400 range to the KRW 48,000 range based on adjusted closing prices.
The court noted, "Although the stock price of a listed company should be formed fairly according to market supply and demand, the defendant provided the starting point for large-scale market manipulation to serve his own business objectives." It added, "The manipulation was carried out over an extended period using numerous accounts, seriously undermining market fairness and investor confidence."
However, the court determined that it was difficult to conclude that Gong had acquired Youngpoong Paper from the outset with the intention of rapidly driving up its stock price and then disposing of his shares and the company. It found that his primary motive for participating in the crime was to raise acquisition funds and maintain the value of the shares pledged as collateral. The court also determined that, while continuing to manage the company, he had expected the stock price to rise gradually.
The court also explained that there was no indication Gong had directly ordered the manipulation trades or specifically controlled individual transactions. In particular, it held that his involvement and substantive contribution were significantly lower after June 2023, when the stock price began to surge. The fact that a large fine was imposed based on the total illicit gains of all the accomplices was also taken into account in sentencing.
During the trial, Gong argued that he had merely borrowed part of the acquisition funds or tried to attract financial investors and had never conspired to manipulate the stock price. However, the court found credible Lee's testimony that he had received funds from Gong to use in manipulating Youngpoong Paper's stock price. The court said this was supported by objective evidence, including a stock-management agreement and the circumstances surrounding the actual transactions.
The court also cited Gong's continued need to maintain the value of his share collateral after acquiring Youngpoong Paper, as well as his discussions with Lee and others about information that could affect the stock price, such as canceling treasury shares and entering new businesses. The court's reasoning was that even if the provision of funds constituted a loan under the law, he could not avoid liability if the money was provided for use in market manipulation.
The court also rejected the claim that the conspiracy ended after the acquisition was completed. It recognized Gong's joint principal-offender liability for the entire period, stating, "He anticipated and accepted that the market manipulation could continue, and there are no circumstances indicating that he withdrew from the crime."
Meanwhile, the court rejected the admissibility of additional financial records collected without a warrant by the Financial Supervisory Service at the Prosecution Service's request after October 4, 2023, when the investigation began. It held that although the collection had been conducted in the form of an administrative investigation, it was substantively part of a criminal investigation and the records should have been obtained under a warrant. The court also determined that the initial illegality was not remedied even though prosecutors later obtained a search-and-seizure warrant and secured the records from the Financial Supervisory Service.
The court found Gong's group guilty of using 444 accounts to manipulate the stock price through October 17, 2023. However, when calculating the illicit gains, it recognized only about KRW 132.4 billion in realized profits from 113 accounts through August 18, based on information verified through lawful materials in the initial investigation. Adding about KRW 20 billion in profits from the accomplices' separate transactions, the court calculated the illicit gains applicable to Gong at approximately KRW 152.4 billion.
The court also excluded more than KRW 132.4 billion in profits managed by Lee's side from the amount subject to forfeiture, saying the money had not been distributed to Gong or the others.
Prosecutors had previously sought a 20-year prison sentence, a fine of KRW 2.3694 trillion, and the forfeiture of KRW 11.3 billion for Gong. On the same day, the court sentenced Lee to 15 years in prison and a fine of KRW 397.3 billion, and ordered the forfeiture of more than KRW 132.4 billion.
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