[Seoul=Newsis] Reporter Woo Yeonsu – The Financial Supervisory Service has referred the case involving Korea Zinc’s rights offering, conducted during a management dispute, to the prosecution as a suspicious transaction. It is expected that Mirae Asset Securities and KB Securities, which were the lead managers for Korea Zinc’s stock buyback and rights offering, will not be free from investigation.
According to the financial investment industry, at the end of October last year, the Financial Supervisory Service (FSS) fast-tracked Korea Zinc’s management, accused of violating capital market laws, to the prosecution following the announcement of a 2.5 trillion won rights offering.
Prior to this, to defend against a management takeover by MBK Partners and Young Poong alliance, Korea Zinc’s management conducted a stock buyback between October 4-23 last year, purchasing 2,331,302 shares at 830,000 won per share. However, it was revealed that during the buyback period from October 14-29, Korea Zinc was already conducting due diligence for a large-scale rights offering through Mirae Asset Securities. Despite this, the buyback report stated that there were no planned changes to the financial structure after the buyback.
On October 31, Korea Zinc announced a rights offering for existing shareholders at a 30% discount to the base price, which led to a lower limit in Korea Zinc’s stock price that day.
The FSS began an investigation into Korea Zinc management immediately after the rights offering announcement, suspecting unfair trading due to the failure to disclose the rights offering plan during the buyback phase. Capital Market Act’s Article 178 bans the use of fraudulent means and schemes when trading financial investment products like securities.
Vice President Ham Yong-il of the FSS commented last October at a press conference that if Korea Zinc’s board was aware of plans to acquire treasury shares through borrowing and later repay through the rights offering and proceeded sequentially, major information was omitted from the original buyback report, indicating potential unfair trading.
If the prosecution finds Korea Zinc guilty of unfair trading, it is anticipated that the securities firms leading the rights offering will also face scrutiny. The FSS is investigating whether Mirae Asset Securities and KB Securities were aware of or involved in any misconduct during the buyback and rights offering process.
Both the Financial Investment Investigation Bureau, which examines securities firms’ illegal activities, and the Investigation Bureau for unfair trading in the capital market, are scrutinizing the lead securities firms.
According to the Capital Market Act’s Article 71, financial investment companies must not execute transactions for clients engaging in unfair trading (Article 178). If Korea Zinc’s management engaged in “fraudulent trading using schemes,” securities firms aware of or ignoring this cannot escape responsibility.
Vice President Ham stated in last year’s press conference, “We will investigate specific facts such as the simultaneous promotion of rights offerings during the buyback period and hold relevant companies and securities firms accountable if illegal activities using fraudulent means or plans are confirmed.”
Meanwhile, ordinary shareholders claiming losses due to Korea Zinc’s public rights offering announcement are preparing a legal response. Law firm Ganghan has filed charges against Korea Zinc and Chairman Choi Yoon-beom for violations of the Capital Market Act and the Act on the Aggravated Punishment of Specific Economic Crimes (Embezzlement) with the Southern District Prosecutors’ Office as part of their free public interest activities.
Korea Zinc will face off against the Young Poong-MBK Partners alliance in an extraordinary shareholders’ meeting on the 23rd. If the cumulative voting agenda is passed at the meeting, it is widely believed that Korea Zinc Chairman Choi Yoon-beom’s side could enhance its voting power, with the ongoing prosecution investigation being a potential variable.