(Corrects article published July 22 to say fund manager sold his stake on Dec. 3 in 10th paragraph.)
Hermes Pensions Management Ltd., which oversees the U.K.'s largest retirement plan, faces the first criminal investigation of an overseas investor in South Korea after local regulators said it breached stock trading rules. Hermes denied the claims.
The Financial Supervisory Service filed a criminal complaint with the Seoul Prosecutors' Office alleging the London-based money manager unfairly profited from an investment in Samsung Corp., the regulator said in a statement today. Hermes, which manages 51 billion pounds ($89 billion), called the action ``regrettable'' and said it has never intentionally conducted illegal stock trades.
``Hermes has found no evidence that its former fund manager engaged in any irregular transactions in the sale of Samsung Corporation shares on Dec. 3, 2004, and found no evidence to support allegations of price manipulation,'' Hermes said in a statement. ``Such an action would directly conflict with Hermes' long-standing business principles.''
Korean regulators are tightening disclosure rules to improve transparency in the nation's stock market. Investors who hold at least 5 percent of a company must now declare their intentions and the National Tax Service said in April it started probing two foreign funds to check they complied with tax rules.
The complaint centers on allegations that remarks made by a fund manager in a Korean newspaper inflated Samsung's shares before the fund sold its entire stake, yielding an 8 billion won ($8 million) improper gain, the regulator said.
The regulator said last year it began its investigation after a fund manager told the Chosun Ilbo newspaper on Dec. 1 that Samsung might become a target for hostile takeover bids by overseas investors unless it improved its corporate governance.
Samsung shares rose 3.6 percent, or 550 won, to 15,850 won on the day the interview was published.
The fund manager had earlier bought 7.77 million common shares in Samsung for Hermes and 8,300 preferred securities for his personal account, the regulator said.
The fund manager being investigated is Robert Clements, who has since left Hermes, said Hermes external spokesman Chris Matthews. ``He didn't say what the regulator claims he said,'' Matthews said today. ``He denied several times in the course of the conversation any knowledge of a possible takeover.''
Hermes sold its 5 percent stake in Samsung, the trading arm of South Korea's largest business group, Samsung Group, on Dec. 3, regulators said today. Clements also sold his shares on Dec. 3, Matthews wrote in an e-mail.
Hermes earned about 8 billion won from the improper comments out of a 29.2 billion won total return on its one-year investment, the regulator said.
``They violated Korean regulations that prohibit the spreading of groundless rumors for the purpose of reaping unfair gains,'' the regulator said.
Officials from Hermes can't be forced to attend a trial and there is no way to ensure penalties are enforced unless they come to South Korea, Jeong Tae Cheol, an assistant governor at the regulator said in a briefing in Seoul. ``This filing is in line with our position of taking stern measures against unfair trading regardless of nationality,'' he said.
Hermes, which manages the pension fund of BT Group PLc, the former U.K. state-owned telephone monopoly, said it will fully cooperate with regulators. The fund said it was surprised that regulators didn't inform them of the ruling before announcing the results in the media.
Hermes participates in shareholder meetings and pushes for reform, according to its Web site. Hermes Chief Executive Tony Watson didn't immediately respond to messages left at his office and on his cell phone.
To contact the reporter on this story: Sangim Han in Seoul at firstname.lastname@example.org