[2023 National Audit] Lee Bok-hyun "Needs Investigation" VS Choi Hee-moon "Unaware of Ihwa Electric Trading Suspension"

CEO Choi Hee-moon: "There Are Three Circumstantial Evidences Showing Complete Ignorance"
Governor Lee Bok-hyun: "Additional Investigation Needed, Will Proceed Without Negligence"

Choi Hee-moon, CEO of Meritz Securities, explained that he "had no knowledge at all" about the trading suspension when he realized gains by selling shares of Ihwa Electric at an incredible timing just before the trading halt. On the other hand, Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), countered, saying, "It is undoubtedly a circumstance that must be used as a strong lead for investigation and prosecution related to the use of undisclosed information."

On the morning of the 17th, Lee Bok-hyun, Governor of the Financial Supervisory Service, is responding to questions from lawmakers during the National Assembly's Political Affairs Committee audit of the Financial Supervisory Service held at the Financial Supervisory Service in Yeouido, Seoul.
[Photo by Yonhap News]

On the 17th, CEO Choi attended the FSS audit by the National Assembly’s Political Affairs Committee as a witness and explained suspicions surrounding the timing of selling Ihwa Electric shares and investments in private convertible bonds (CB) and bonds with warrants (BW). In response to Rep. Lee Yong-woo of the Democratic Party’s question on whether it was really a coincidence that he sold the shares just before the trading suspension, Choi replied, "There is circumstantial evidence that I had no knowledge at all."

He said, "First, I applied for conversion to Ihwa Electric three weeks before the trading suspension, and the moment the conversion application is made, the collateral rights are lost," adding, "If I had foreseen the trading suspension, I would not have applied for the conversion." He also pointed out that he acquired additional securities related to Ihwa Electric six days before the trading suspension, emphasizing that if he had judged that the trading would be suspended, he would not have made the additional acquisition. He continued, "On the day the trading was suspended, Ihwa Electric bought securities worth 30 billion KRW with a premium," adding, "From this, I believe the company was not thinking about the trading suspension either."

When asked by Rep. Lee whether CEO Choi knew that Ihwa Electric Chairman Kim Young-jun was a former bond dealer with a history of stock price manipulation, Choi answered, "I had no knowledge at all." In response, Rep. Lee criticized, "Are you saying that the issuer’s reputation risk does not need to be considered as long as the money is made well and the collateral is secured?"

He also revealed that he requested a copy of the investment review documents to examine the details of the 247 billion KRW CB and BW investments, but CEO Choi refused to submit them, citing trade secrets. Rep. Lee pointed out, "In four years and four audits, this is the first time I have seen a refusal to submit materials."

Meritz Securities invested in 40 billion KRW worth of BW issued by Ihwa Electric in 2021. Later, just before the trading suspension of Ihwa Electric and its affiliates following Chairman Kim Young-jun’s arrest in May, Meritz sold all of its 32.22% stake, realizing a profit of about 9 billion KRW. This raised suspicions in the market that the sale was conducted with prior knowledge of inside information.

While CEO Choi drew a clear line denying the use of undisclosed information during the sale of Ihwa Electric shares, Governor Lee of the FSS assessed, "(Internally) it does not look healthy." In response to Rep. Lee’s question on whether the timing of the sale should be seen as a coincidence or the use of undisclosed information, he replied, "It is a situation that must be used as a strong lead for investigation and prosecution."

Governor Lee also expressed the need for additional investigation into the self-interest pursuit by Meritz Securities’ executives involved in issuing and underwriting CBs. Recently, the FSS uncovered allegations that Meritz Securities employees obtained tens of billions of KRW in private gains using internal job information during the private CB issuance process. When asked by Rep. Lee whether this was an individual deviation, Governor Lee responded, "It seems that the company’s normal professional ethics and control systems were not comprehensively in place." He also answered "necessary" when asked if further investigation was needed into how the company was involved in the investment process.

Rep. Lee raised his voice, saying, "We must thoroughly investigate how the investment decisions were made through a comprehensive inspection of Meritz Securities to uncover all facts." Governor Lee said, "(The inspection) will be conducted diligently without negligence," adding, "We will do our best to reach a reasonable conclusion with a balanced approach by carefully listening to the materials and positions presented by the audited institution."

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