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.