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S Korean Prosecutors Raid Samsung Securities Over Trading Error

© REUTERS / Kim Hong-Ji/File PhotoThe logo of Samsung Electronics is seen at its office building in Seoul, South Korea, March 23, 2018
The logo of Samsung Electronics is seen at its office building in Seoul, South Korea, March 23, 2018 - Sputnik International
South Korea’s major consumer electronics maker Samsung is under pressure in the face of at least two separate prosecutorial probes and rising competition on the international market.

Kristian Rouz — Regulatory turmoil continues for South Korean electronics-maker Samsung, as its offices have been raided by the authorities yet again. The prosecutors in Seoul allege a recent mistake in share issuance has unfairly benefitted several Samsung employees, and the authorities are seeking to determine whether the error could be intentional.

South Korean prosecutors say Samsung Securities made a "fat finger" mistake, issuing some 2.8 billion in equities to its own employees. This is 30 times the amount of Samsung's total stock, and a total value of the mistakenly-issued shares could reach as high $100 billion.

The logo of Samsung Electronic is seen at its headquarters in Seoul, South Korea, in this file photo taken on April 4, 2016. - Sputnik International
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The mistake reportedly happened on April 6.

This incident has already caused a massive public backlash, as some observers pointed out several employees have already sold their stake — issued by mistake in the first place.

Additionally, Samsung's stock was suspended from trading in late April — early May after stakeholders agreed to re-price the company's shares after a major improvement in Samsung's profits in the first quarter.

"The suspension is for a short time, though I'm not sure why even that length of period is required," Sat Duhra of Singapore-based Janus Henderson Investors said. "In many developed markets the stock just trades at the new price the next trading day."

Experts note the error scandal could hurt Samsung's investment appeal despite its solid presence on international markets. And, of course, the turmoil comes as an accidental boon to Samsung's biggest international rivals — such as US-based consumer electronics maker Apple, and multiple Chinese firms.

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According to South Korea's financial regulators, at least 21 Samsung employees sold or tried to trade their stock in an attempt to capitalize on the erroneous equity issuance. These employees have all been reported to prosecutors, and may be facing fines or other forms of punishment — if it is proven they had malign motives when attempting to engage in the reported transactions.

Meanwhile, Samsung representatives have confirmed the searches are underway at the company's securities unit. No further details have been made available as of yet.

For its part, Samsung Securities said in a separate statement they will improve internal controls in order to avoid similar errors in the future. It remains unclear whether the incident was an honest mistake.

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This latest scandal also comes after prosecutors raided the main office of Samsung Electronics earlier this month as part of a separate investigation into the company's alleged anti-union activities.

According to the South Korean media, HR executive of Samsung Electronics Service Choi Pyeong-seok was taken into custody earlier this month on suspicion of suppressing workers' rights to unionize.

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Choi is also believed to have been profiling the workers engaged in labor union activities.

The regulatory crackdown on Samsung comes amid tumultuous times for the electronics-maker. Despite the recent improvement in corporate profits, Samsung is under pressure in the face of possible disruptions in global trade, as well as the strengthening competition from mainland China.

"Samsung is facing competition from every direction, from Chinese-based OEMs in the low- and mid-end segment and from Apple in the high-end segment," Jusy Hong of IHS Markit said.

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Despite the public outcry and prosecutorial action against Samsung, its shares were flat in early Monday trading, as investors are still encouraged by the company's robust sales figures at home and overseas. Meanwhile, the negative effects of the erroneous stock issuance are expected to gradually subside, as any alleged wrongdoing was reported at an early stage.

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