Massive Buying Just Before Negative Disclosure... 22 Companies Suspected of Unfair Trading Detected

17 Locations Already Under Trading Suspension
Frequent Resale After Unnecessary M&A... Frequent Changes in Major Shareholders Should Raise Suspicion

Provided by Korea Exchange

[Asia Economy Reporter Minwoo Lee] Twenty-two stocks suspected of unfair trading, such as selling held shares before adverse disclosures using internal undisclosed information, have been detected.

The Korea Exchange announced on the 28th that it conducted market surveillance on financially distressed companies with December year-end closing last year and identified 22 stocks with a high likelihood of unfair trading. Among the detected companies, five were designated as management stocks. The remaining 17 faced delisting reasons such as audit opinions refusal and are currently suspended from trading. Only one of these companies was listed on the KOSPI market. Most were concentrated among KOSDAQ-listed companies.

It is estimated that a significant portion of the detected unfair trading involved insiders avoiding losses by selling shares in large volumes before adverse disclosures using internal undisclosed information. There were cases of large net selling without trading other stocks immediately before adverse disclosures. Many cases were presumed to be trades by insiders such as major shareholders or executives who had easy access to internal information.

The Exchange introduced key characteristics of financially distressed companies and urged caution. First, companies with poor financial structures should be avoided. These are small-scale corporations with poor operating performance, high debt ratios, and small capital size. In fact, 18 out of the 22 detected companies had capital under 30 billion KRW.

Companies with weak governance were also described as risky. Most detected companies had major shareholders with less than 10% stake, which is relatively low, and frequent changes in major shareholders and CEOs. In particular, there were cases suspected of capital-free mergers and acquisitions (M&A) using borrowed funds, such as when the major shareholder was an investment association and the source of acquisition funds was unclear.

Attention should also be paid to fundraising and capital outflows. The detected companies were characterized by acquiring shares of other corporations for new business ventures, adding business objectives accordingly, and frequent fundraising. They showed high dependence on external funds and inconsistent behavior such as pursuing M&A in fields unrelated to their main business with those funds and then reselling them.

In fact, among the 22 detected companies, 20 issued third-party allotment capital increases, convertible bonds (CB), or bonds with warrants (BW) in the past three years. Seventeen companies acquired firms unrelated to their original industries, such as biotech, and seven of these resold them within three years.

Additionally, frequent corrections or cancellations of important disclosures were common. Many cases involved repeatedly postponing the payment date of third-party allotment capital increase disclosures and continuously reducing the amount, repeatedly correcting or canceling fundraising-related disclosures.

The Exchange’s Market Surveillance Committee stated, "To prevent investors from suffering damage from such companies, market surveillance will be conducted separately for companies whose business report submission deadlines have been extended," and added, "We will continue to do our best to detect unfair trading early and establish a fair trading order in the future."

This content was produced with the assistance of AI translation services.