(Bloomberg) -- South Korea’s prosecutors were asked to conduct an investigation into hedge fund Regal Funds Management Pty for alleged capital markets rules violations, according to people with knowledge of the matter.

The Securities and Futures Commission referred the matter to prosecutors in December, who haven’t closed the case, the people said, asking not to be identified discussing the probe.

Banks and hedge funds are under increased scrutiny in South Korea, as the authorities step up efforts to weed out illegal short-sellers and impose tougher penalties for stock manipulation and other unfair trades. The nation’s financial authorities said this week it uncovered 211.2 billion won ($155 million) worth of illegal short trades by nine global investment banks.

Australia-based Regal didn’t respond to requests for comments. The Seoul Southern District Prosecutors’ Office declined to comment, saying it can’t confirm the circumstances of any investigation related to the matter. The Financial Services Commission declined to comment. The SFC said it can’t confirm details for matters under investigation.

In December, the SFC fined three unidentified global hedge funds a combined 2 billion won for violations of capital markets law including illegal short selling and unfair trades.

Regulatory filings show hedge fund firm Segantii Capital Management Ltd. and proprietary trader Jane Street Group LLC were two of the firms. Regal said in an April 16 filing that it’s appealing a 313 million won penalty imposed by South Korea’s financial authorities for alleged breaches of the securities law in connection with trades made by a former employee. 

On Feb. 20, officials from the Seoul Southern District Prosecutors’ Office conducted searches for an investigation into a global financial investment firm. The company, which it didn’t identify, is under probe for suspicion of generating unfair profit using naked short selling during a block trade, the prosecutors’ office said in a text message then.

Naked short selling, an act of selling shares without borrowing them first, is banned in South Korea and is a violation of the capital markets act subject to criminal punishment.

--With assistance from Bei Hu.

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