|J.P. Morgan Chase headquarters in New York /AFP-Yonhap|
By Anna J. Park
After a huge controversy blew up over the “real hidden intention” behind JPMorgan’s recent report on major Korean biopharmaceutical firm Celltrion, the local financial authorities are pressuring the U.S.-based investment bank to correct its alleged “unfair business practices” statement, sources said Monday.
The Financial Supervisory Service (FSS) didn’t deny the possibility of punishing the bank, though the regulator only said, “It is inappropriate for them to mention the case at this stage whether the financial authorities are looking into the matter or not.”
An FSS official added, “The FSS cannot confirm any facts related to these matters, as messages on the issue could send the wrong signals to the market. Currently we cannot confirm anything on the matter.”
The nation’s bourse operator Korea Exchange is on the same page with the FSS; while JPMorgan’s Seoul office could not be reached for comment.
The latest update comes as suspicion still lingers over whether JPMorgan’s recent acts regarding Celltrion could constitute an “unfair transaction practice” on the local capital market. The controversy started when JPMorgan issued an “underweight” investment report last Wednesday on Celltrion and Celltrion Healthcare, cutting down the firms’ stock target prices by 30 percent from the previous day’s trading.
With the reports’ announcement on that day, the two companies’ stock prices fell by 6.13 percent and 4.36 percent, respectively, at closing. JPMorgan, however, was estimated to have purchased 221,708 shares of Celltrion Healthcare the very next day after its research team published the “underweight” opinion.
Such a contradictory move by the global investment bank strengthened earlier thoughts and questions on whether the research paper was part of a choreographed plan to short-sell the biopharma companies’ stocks.
The fact that other major local securities firms’ investment papers on Celltrion and Celltrion Healthcare set their target prices much higher than JPMorgan also amplified suspicions that the investment bank had an ulterior motive other than objectively delivering research results.
Following Celltrion’s official rebuttal of the JPMorgan investment report the next day, some retail investors in Korea filed an online petition on the Cheong Wa Dae website, urging the nation’s financial authorities to investigate JPMorgan’s trading. As of 3:20 p.m. Monday, 14,137 people have signed the petition.
It is still uncertain whether the suspicions of local retail investors are based on solid facts or just conjecture, yet there has been some reasoning behind retail investors’ suspicions over global investment banks’ short-selling plans backed by their off-balance negative reports.
Various foreign investment firms, including JPMorgan, Morgan Stanley and Nomura Securities, have published underweight positions on Celltrion over the past few years, while the biopharma firm has been one of the most-shorted stocks in Korea during the period. Given that short-selling has long been used exclusively by institutional investors, and that local securities firms mostly published positive investment papers on the pharmaceutical company, retail investors suspect global investment banks as the source of major short-selling of the company, and complained about an uneven playing field due to this.
JPMorgan’s previous track record of receiving warnings from the FSS early this year also adds to retail investors’ doubts over the firm’s fairness in its trading patterns. Based on investigations conducted during the summer last year, the FSS decided to issue warnings over internal control of intra-group information sharing.
Back in 2015, the headquarters of JP Morgan Chase was also sanctioned by the U.S. Securities and Exchange Commission (SEC) for its involvement in garnering profits by artificially lowering stock prices.