Online rumors wreak havoc on businesses

Clarification disclosures on false claims hit record 271 this year

By Jun Ji-hye

Fake news and rumors targeting publicly listed companies are on the rise and spreading more quickly, driven by the advancement of online media platforms and messaging apps. This disinformation often causes significant harm, not only to corporations, including major conglomerates, but also to investors.

A notable example is Lotte Group, which recently experienced a sharp decline in the stock prices of its subsidiaries due to rumors of a liquidity crisis, including speculation that the conglomerate will announce a moratorium on its repayments in early December.

The rumors, which began on several YouTube channels on Nov. 16, quickly spread through KakaoTalk, leading to 6.6 percent, 10.2 percent and 6.6 percent drops in Lotte Corp., Lotte Chemical and Lotte Shopping's stock prices, respectively, on Nov. 18.

Although the group, ranked sixth among the country’s major conglomerates, clarified the rumors as groundless through a disclosure, the damage had already been done, with an estimated 600 billion won ($427 million) in market capitalization wiped out from its affiliates in a single day.

In June, rumors about the health and alleged death of Hyundai Motor Group Honorary Chairman Chung Mong-koo circulated widely on YouTube, causing a surge in the stock price of Hyundai Mobis, a key player in the group’s governance structure with over a 21 percent stake in Hyundai Motor.

These rumors often originate from YouTube, using sensational phrases like “crisis” or “urgent” to speculate on a company’s future or seemingly expose personal details about its top executives. As these videos are turned into text-based rumors, unverified allegations snowball and spread rapidly through mobile messaging platforms like KakaoTalk.

Such rumors and the resulting stock price fluctuations have prompted the affected companies to issue disclosures denying them.

According to LS Securities, Tuesday, the number of financial disclosures made by listed companies to clarify various rumors or false information as groundless reached 271 this year as of Nov. 25.

The figure already exceeded last year's total clarification disclosures, which stood at 258 cases, and has more than doubled compared to four years ago. It also marks the highest number since the Korea Exchange introduced the related disclosure system in July 2015.

“The surge in clarification disclosures indicates the growing influence of themes and rumors in the stock market,” LS Securities analyst Hwang San-hae said.

Experts warn that stock price fluctuations triggered by false information can contribute to the so-called Korea discount, which refers to the tendency for Korean securities to be undervalued compared to similar shares in other countries.

“When rumors or speculative information spread, regardless of their validity, they can critically damage a company. For instance, if rumors about a liquidity crisis arise, banks may stop lending to the company, potentially leading to bankruptcy,” Kim Dae-jong, professor at Sejong University’s school of business, said.

“Volatility driven by such rumors also significantly affects investors. If false information lowers a company’s value, shareholders face financial losses. This not only undermines market confidence but is also a key factor behind the Korea discount. In addition, it is one of the reasons retail investors are increasingly shifting their focus to the U.S. stock market.”

Under the Capital Market Act, individuals can be punished for unfair trading if they spread rumors with the intent to trade financial investment products or manipulate prices. However, rumors targeting an unspecified audience are difficult to investigate, making it challenging to identify suspects or prove allegations.

“Without concrete evidence of specific transactions or profit-seeking activities, it is hard to penalize someone solely for spreading rumors,” an official at the Financial Supervisory Service, the country’s financial watchdog, noted.

Experts argue that the authorities need expanded investigative powers to crack down on false information that disrupts market order.

“With the rapid advancement of media platforms, it is challenging for financial authorities to fully control or manage the spread of information. However, it is crucial to impose strict penalties according to the law and principles for false or misleading information,” Kim said.