Securities and Futures Commission Reports Management to Prosecution for Unfair Trading in Spin-Off and Relisting

Financial authorities have reported the management of a listed company to the prosecution for manipulating financial statements and artificially inflating share prices during a spin-off and relisting process.

The Securities and Futures Commission of the Financial Services Commission announced on the 23rd that, at its 8th regular meeting held on the 22nd, it decided to report four individuals, including the management of listed company A, to the prosecution for violating the prohibition against unfair trading under the Capital Markets Act. The charges are related to allegations that, during the process of splitting company A into two listed entities and relisting, the management sold an insolvent subsidiary to a third party unrelated to company A at an inflated price, thereby creating a false appearance that company A’s financial structure was improving. This deceived the Korea Exchange and general investors, leading to artificial inflation of company A’s stock price.

The suspects, who are members of the management of listed company A and its subsidiary B, decided to sell the insolvent subsidiary B in order to split and relist company A. Using funds from company A’s largest shareholder and its affiliates, they set up a paper company C with no real business operations or financial resources to acquire B. Even after the sale, company A continued to provide operational funding to B by guaranteeing its debts and extending loans.

Additionally, the suspects are accused of deliberately omitting large amounts of debt from the financial statements, causing the value of B’s shares to be significantly overstated. By selling B to a third party unrelated to company A at a high price and creating the appearance of improved financials, they succeeded in the spin-off and relisting of company A. As a result, company A’s stock price temporarily soared, allowing the suspects to reap substantial unjust profits. Previously, in July of last year, the Securities and Futures Commission imposed fines and notified the prosecution in connection with violations related to accounting practices.

Under the Capital Markets Act, those who use fraudulent means in connection with the trading of financial investment products, or who intentionally misstate or omit material information to gain money or other property benefits, can face criminal penalties, including imprisonment of at least one year or a fine of up to six times the amount of illicit gains.

An official from the Financial Services Commission stated, "We will continue to closely monitor unfair trading activities to ensure the fairness of the capital market and protect investor trust. We will thoroughly investigate and take strict action against any detected violations in order to maintain order in capital market transactions," adding, "We urge the public to actively report any suspected unfair trading activities in the capital markets."

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