Hermes Becomes First Foreign Fund to Receive Criminal Punishment


By Seo Jee-yeon
Staff Reporter


The Seoul Central District Prosecutors’ Office Tuesday indicted and fined Hermes Investment Management on charges of manipulating stock prices.

This is the first time a foreign investment fund has been indicted in South Korea for stock price manipulation.

The prosecution slapped 7.3 billion won ($7.4 million) in fines on the London-based investment fund for the same offense.

It also secured an arrest warrant against Robert Clements, the former chief of Hermes Investment’s emerging market management on charges of reaping unfair gains from trading in Samsung Corp. shares in 2004.

``The fine was imposed on Hermes as Clements was found guilty of stock price rigging,’’ the office said in a statement, adding it issued a warrant against Clements who stays outside Korea.

In response, Hermes Investment expressed regret for the Korean prosecution’s indictment through a statement, reaffirming that it is innocent.

Hermes Chairman Richard Bernays said in the statement, ``We are disappointed that the Korean prosecutor has filed charges against the firm. We believe that Hermes has complied with Korean rules and regulations in all of our activities.’’

The company head said it will review the matter with its Korean legal advisers before determining its next step.

Hermes took gains amounting to 29.2 billion won in December in 2004 by selling its 5 percent stake or 7.77 million shares in Samsung Corp. just after the company’s shares soared following Clements’ interview with a local paper in November, prosecutors said.

In the interview, Clements raised the possibility that Samsung Corp. might be the subject of a hostile takeover in which Hermes could be involved unless it improved its corporate governance. The news resulted in a sharp surge of the Samsung stock.

Clements is also charged with personally earning 30 million won by selling his 8,300 shares in Samsung Corp.

The prosecution estimated the stock surge after the interview offered 7.3 billion won in additional returns to Hermes, an amount equal to the fines slapped on Hermes.

The financial regulators reported Hermes to the prosecution last July, claiming the fund management firm breached the Korean securities act by intentionally giving out false information about Samsung for its own financial benefit.

The prosecution said it didn’t find other corporate managers except Clements were involved in the case, but it concluded Hermes has to take responsibility for the wrongdoing of its employees.

Market watchers predicted the penalty against Hermes will set a precedent to ban illegal business practices of foreign investors.

``Korea always welcomes foreign investors but their wrongdoings have to be punished in the same way as local players,’’ an official of the Financial Supervisory Service said.

His comment confirmed that the government would take action against rule-breaking foreign capital.

Market analysts said concerns that the case could hamper foreign investor sentiment are excessive.

``It is fair to punish illegal trading practices regardless of the origin of capital. Foreign stock investors will continue to stay in the Korean market producing high returns,’’ Lee Jong-woo of Hanwha Securities said.

Hermes has 91 trillion won in assets throughout the world and it invests 490 billion won in Korea as of now, according to the prosecution.


jyseo@koreatimes.co.kr