Exchange "15 Companies with Unfair Trading Allegations Detected" ... Investment Caution

[Asia Economy Reporter Lee Seon-ae] The Korea Exchange has uncovered unfair trading suspicions involving 15 financially distressed companies. These companies showed increased likelihood of unfair trading such as fraudulent transactions, market manipulation, and insider trading, driven by deteriorating performance and attempts to raise funds or recover investments.

On the 22nd, the Korea Exchange Market Surveillance Committee announced that it had detected unfair trading suspicions in 15 financially distressed companies with fiscal year ending December 2020 and reported them to financial authorities. Among 24 companies referred for review by the Exchange’s Market Surveillance Department, the remaining 9 companies are still under investigation.

Financially distressed companies are those that have triggered delisting reasons such as audit opinions of denial or have been designated as management stocks. Among the companies with detected suspicions, 3 are listed on the KOSPI market and 12 on the KOSDAQ market.

The most common suspicion found was insider trading with 12 cases, followed by one case each of fraudulent trading, market manipulation, and violation of reporting obligations.

Some companies were found to have secured shares at a lowered stock price following the disclosure of negative information, then used announcements of new business ventures to boost the stock price and sell their holdings for profit.

Characteristics of the detected financially distressed companies include sharp fluctuations in stock price and trading volume during the fiscal period, and a rapid deterioration of financial structure over the past 2 to 3 years.

The average stock price volatility of the 15 companies during the 2020 fiscal period (January to March 2021) was 31.5%, significantly exceeding the KOSPI (6.5%) and KOSDAQ index (1.3%) changes during the same period. Trading volume also increased by 244% compared to the previous three months.

The average operating loss of the 15 companies last year was 6.76 billion KRW, and the net loss was 16.19 billion KRW, showing a deficit state that has worsened over the past three years.

The debt ratio also continuously worsened, rising sharply from 119.5% in 2018 and 162.3% in 2019 to 453.9% last year.

Additionally, from January 2019 to June 2021, 9 companies repeatedly raised large-scale funds amounting to 289.5 billion KRW through 33 issuances of convertible bonds (CB) and bonds with warrants (BW), relative to their capital.

The 15 companies also showed low major shareholder equity ratios (average 20.9%) and frequent management changes, resulting in poor management stability.

They also added new thematic businesses unrelated to their existing operations as business objectives or made excessive investments relative to their capital size.

The Exchange urged, "Investors should keep in mind the characteristics of financially distressed companies and carefully review the disclosure information and audit reports of companies they invest in."

Furthermore, it emphasized, "Financially distressed companies can be used as target stocks in stock recommendation chat rooms, so investors should be cautious about blindly investing in stocks recommended on social networking services (SNS) or in such chat rooms."

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