Suspiciously Similar Yet Different Plunge in Youngpoong Paper... Allegations of Zero-Capital M&A and Insider Price Manipulation

Yeongpung Paper & Daeyang Metal Sudden Limit Down
Prosecutors Arrest Stock Manipulation Group a Day Before Price Crash "Suspected of Market Manipulation"
Effectively a No-Capital Acquisition... Yeongpung Paper Acquired with Yeongpung Paper's Own Money

Yoon Mo and Lee Mo, who are suspected of market manipulation in connection with allegations of unfair trading involving Youngpoong Paper, are appearing at the Seoul Southern District Court in Yangcheon-gu on the morning of the 20th for a pre-arrest detention hearing.
[Image source=Yonhap News]

When Yeongpung Paper suddenly hit the lower limit price on the 18th and the financial authorities suspended its trading, the stock price movements of Yeongpung Paper and its parent company, Daeyang Metal, which also hit the lower limit, resembled the incidents in April involving eight stocks hitting the lower limit triggered by Soci?t? G?n?rale (SG) Securities and in June involving five stocks hitting the lower limit triggered by Barun Investment Research Institute. They share common characteristics such as ▲stocks not subject to short selling ▲long-term undervalued stocks with relatively good earnings ▲high credit balance ratios.

However, during the SG Securities lower limit incident, the stock price was gradually driven up through matched orders using accounts capable of Contract for Difference (CFD) trading via mobile trading systems (MTS) installed on mobile phones. In contrast, Yeongpung Paper and Daeyang Metal have very low CFD balances. Capital market experts believe that since the CFD balances are not large and there are merger and acquisition (M&A) issues involved, there is a high possibility of insider involvement in price manipulation. When Daeyang Metal acquired Yeongpung Paper in 2022, the financing of the acquisition and Yeongpung Paper’s subsequent actions resembled a 'no-capital corporate M&A,' suggesting that insider involvement in price manipulation is central to this incident. The swift response by financial authorities and prosecutors is widely viewed as an effort to uncover the relationship between the operation forces and major shareholders.

A senior official in the financial investment industry explained, "Considering that the financial authorities also suspended trading of Daeyang Metal, the largest shareholder of Yeongpung Paper, it appears they suspect a connection with internal forces," adding, "Also, Daeyang Metal’s acquisition of Yeongpung Paper was essentially a 'no-capital M&A,' and the reason it is interpreted as an attempt to realize profits from Yeongpung Paper’s stock price rise is because Yeongpung Paper actively boosted its stock price through plans to enter new businesses." Yeongpung Paper’s stock price surged after the announcement in June of its entry into the spent battery recycling business, grouping it with secondary battery-related stocks.

The industry believes that the rapid response by authorities led to the lower limit price on the 18th, causing the price manipulation to fail. A financial authority official stated, "We detected suspicious trading patterns about one or two months ago, and the Securities and Futures Commission under the Financial Services Commission fast-tracked the case to the prosecution about two weeks ago." The fast-track system allows the Securities and Futures Commission to refer urgent and significant cases to the prosecution without deliberation, by decision of the chairman (the vice chairman of the Financial Services Commission).

The Seoul Southern District Prosecutors’ Office’s Joint Financial and Securities Crime Investigation Division arrested Mr. A and others on the 17th, the day before the lower limit incident, on charges of violating the Capital Markets Act and conducted searches of their residences. After the main suspects who artificially drove up the stock price were caught, their accomplices or related parties flooded the market with sell orders on the 18th, leading to Yeongpung Paper and Daeyang Metal hitting the lower limit.

From the market opening on the 18th, sell orders for Yeongpung Paper poured in, and by around 9:12 a.m., it reached the lower limit price. Daeyang Metal, which holds 45% of Yeongpung Paper’s shares, also entered the lower limit around 9:30 a.m. that day. Yeongpung Paper’s stock closed at 33,900 won, down 14,500 won (29.96%) from the previous day. Daeyang Metal’s stock also fell to 2,250 won, down 960 won (9.91%). Yeongpung Paper’s stock price rose from 2,731 won on October 21 last year to 54,200 won in early September. After the market closed on the 18th, the financial authorities suspended trading of both stocks.

An industry insider analyzed, "Typically, stock price manipulation involves creating several large bullish candlesticks and spreading favorable news to attract individual investors before unloading shares, but there is no such trace on Yeongpung Paper’s stock chart," adding, "The lower limit occurred because accomplices dumped sell orders following the authorities’ swift response, and ultimately their price manipulation failed." Another insider said, "Given the incidents in April, June, and the Ihwa Electric case, the financial authorities have strengthened monitoring more than ever, so it seems they underestimated the situation," and added, "The reason we cannot help but suspect a planned no-capital M&A and price manipulation lies not only in the financial authorities’ actions but also in the investigative authorities’ moves."

The Seoul Southern District Prosecutors’ Office’s Joint Financial and Securities Crime Investigation Division arrested four people, including Mr. Shin, on charges of participating in price manipulation by raising funds for stock price manipulation, and filed detention warrants on the 19th. The prosecution also imposed travel bans on about ten others suspected of involvement in the price manipulation. On the 20th, they additionally arrested Mr. Choi, a major player in the Myeongdong private loan market, who is known to have lent acquisition funds to Mr. A, the actual owner of Daeyang Metal. On the same day, four related persons suspected of price manipulation were all detained in connection with the stock price crash of Yeongpung Paper and Daeyang Metal.

The Yeongpung Paper and Daeyang Metal lower limit incident is similar to the sharp stock price drops in April and June but has some differences. An industry insider said, "The similarities include stocks not subject to short selling with decent earnings, hitting the lower limit around the same time, and minimal price adjustments during the price correction, which suggests the involvement of operation forces," but added, "However, Yeongpung Paper showed active stock price boosting, indicating a high possibility that internal forces of Yeongpung Paper and Daeyang Metal colluded with the price manipulation forces." Another insider said, "Yeongpung Paper was likely to be included in the KOSPI 200 before hitting the lower limit, but the simultaneous drop of Daeyang Metal, ranked 900th in KOSPI market capitalization, cannot be explained as profit-taking to avoid short selling before inclusion." Moreover, the inclusion of Daeyang Metal in the suspended trading stocks itself suggests suspicion of collusion between the major shareholder and the operation forces.

Yeongpung Paper’s CFD balance on the 17th was only 800,000 won, and Daeyang Metal’s CFD balance at the same time was about 286.37 million won, showing differences from previous lower limit stocks. A senior official at the Korea Exchange said, "It has nothing to do with CFDs," and added, "The investigation will determine whether the operation forces coordinated with the major shareholder."

Daeyang Metal is widely regarded as having acquired Yeongpung Paper through a 'no-capital M&A.' The purpose of no-capital M&A is to sell the acquired shares for capital gains rather than managing the company after acquisition. When Daeyang Metal acquired 50.76% of Yeongpung Paper’s shares from Q Capital for 128.9 billion won, Daeyang Metal’s capital was only 22.6 billion won. It raised 113.1 billion won, about 87% of the acquisition amount, through external borrowing, including loans secured by 50.51% of Yeongpung Paper’s shares. Subsequently, Daeyang Metal issued convertible bonds (CB) to Yeongpung Paper to repay the borrowed funds from the acquisition. An industry insider explained, "It was controversial that almost all of the 130 billion won acquisition funds for Yeongpung Paper were raised through CBs," adding, "Before the acquisition, Yeongpung Paper’s market capitalization was 250 billion won, and Daeyang Metal acquired 50.51% of the shares almost without a control premium, and the CBs were acquired by Yeongpung Paper, the acquired company." This means that Yeongpung Paper took on the 17 billion won CBs issued by Daeyang Metal to repay part of the acquisition funds, effectively meaning Yeongpung Paper bought itself with its own money. Another insider noted, "Before Daeyang Metal became the largest shareholder, Yeongpung Paper’s stock price did not exceed 10,000 won, but it steadily rose afterward," adding, "Especially, Yeongpung Paper attracted market attention by adding 16 business items to its articles of incorporation at the shareholders’ meeting in March this year." The most common way to boost stock prices after a no-capital M&A is to promote new businesses.

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