Stock-Price Manipulation Routes Through Tax Havens

Korean authorities are spotlighting outsized activity in local stocks through the Cayman Islands. The suspicion is that Cayman-based investors are domestic persons using the offshore banking center for illicit purposes. That game is familiar, but growth in this activity is testimony to more intensive finance-sector compliance in many nations worldwide. Stock-price manipulation is a close cousin to insider trading and tax evasion. In terms of the number of investors, the Cayman Islands is home to about 8% of those foreigners owning shares on the Korea Exchange, ranking third behind the United States and Japan. Korea is a large stock market so the impact of foreign buying is felt most directly on small-cap stocks. Investors in emerging and frontier stories should be alert to price-rigging tactics. A small-cap stock in Korea may prove to be a medium-to-large-cap stock in many developing equity markets.

Our Vantage Point: Emerging and frontier markets are highly accessible. Yet, when evaluating specific investment opportunities, baseline due diligence on share ownership may prevent frustration with distant transactions.

Learn more at The Korea Times.

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Image: Port city of Busan is home to the Korea Exchange. Credit: SeanPavonePhoto at Can Stock Photo Inc.

► Have You Read?

Secrecy World (Affiliate Link)
Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite
Jake Bernstein

The Pulitzer Prize winning author Jake Bernstein accomplishes a stunning feat in assembling a narrative around the Panama Papers. Although riveting, the text can be so detail-intensive that it may be better digested by banking and legal professionals, than the casual reader. One key criticism: the author does a poor job of distinguishing between tax avoidance and tax evasion. Not everyone who is affiliated with an offshore jurisdiction is guilty of criminal intent. Highlights include the discussion of how China’s ruling class benefits from secrecy laws, as well as the exposé on the global art trade. Emerging-market specialists will appreciate the analysis of political leadership in Azerbaijan and Argentina, among other nations. Many will start reading the book with the assumption that Panama-based Mossack Fonseca used its legal acumen to be the chief architect of the secrecy world. In truth, we learn that myriad institutions globally have been compliant in aiding and abetting offshore graft. The writer argues that piercing the veil that hides these illicit dealings is a matter of acute public interest.


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