Ostem Embezzlement Protagonist, Did They Aim for Market Profit by Pretending a 'Hostile M&A'?

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] Lee Mo (45), the finance manager of Ostem Implant and the main figure in the largest embezzlement case in the history of the domestic stock market, disclosed the purpose of holding shares commonly used in hostile mergers and acquisitions (M&A) when he embezzled company funds to acquire shares of Dongjin Semichem.

According to the Financial Supervisory Service on the 6th, Lee first disclosed on October 5 last year that he held 3,917,431 shares of Dongjin Semichem. The purchase date was October 1 of the same year, and the shareholding ratio reached 7.62%. Lee stated that the purpose of holding was to consider related actions in accordance with Article 154, Paragraph 1 of the Enforcement Decree of the Capital Markets and Financial Investment Business Act to align with the company's management objectives. This clause allows demands such as ▲appointment, dismissal, or suspension of duties of directors and auditors ▲amendments to the articles of incorporation related to the company’s institutions such as the board of directors ▲changes in the company’s capital, thereby expressing an intention to participate in management through equity investment.

This method has often been used as a declaration of intent just before hostile M&A in past management disputes of listed companies. During the management dispute of Korean Air, Grace Holdings, an investment purpose company under the private equity fund KCGI, first disclosed on November 14, 2018, that it had acquired 9% of Hanjin KAL, the largest shareholder of Korean Air, stating the same purpose of holding. The following year, Grace Holdings demanded the appointment of directors and auditors, leading to a full-scale management dispute, during which Hanjin KAL’s stock price surged from the low 20,000 won range to 50,000 won.

On October 1 last year, when Lee made a large purchase of Dongjin Semichem shares, a fake news circulated in the market that Samsung Electronics Vice Chairman Lee Jae-yong had instructed the acquisition of Dongjin Semichem, causing the stock to hit the daily upper limit during trading. However, it gave back the gains within about an hour and closed with a strong gain of around 3%. Afterwards, Dongjin Semichem’s stock price declined, falling below Lee’s purchase price. Eventually, Lee sold the shares in seven installments from November 18 to December 20, incurring a loss of about 30 billion won as most sales, except for the first two, were at prices lower than the purchase price. An internal auditor of a mid-sized company said, “It seems he tried to exploit loopholes in the internal accounting control system to make money with stocks and deposit it before the external auditor, the accounting firm, requested a balance confirmation from the bank at the end of the term, but failed.”

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