"Be Cautious of Fake Good News Aiming to Boost Stock Prices During the 감사보고서 Disclosure Season"

Deadline Approaching for Audit Report Submission of Fiscal Year-End Corporations Ahead of March General Meeting
Korea Exchange Announces Strict Measures... "Focused Monitoring and Cooperation with Related Agencies"

[Asia Economy Reporter Minwoo Lee] As the deadline for submitting audit reports for December fiscal year-end corporations approaches next month, the Korea Exchange (KRX) has urged caution against fake positive news used to boost stock prices by distressed companies.

On the 26th, the KRX Market Surveillance Committee announced cases of unfair trading committed by marginal companies, which are highly likely to be designated as managed stocks or delisted, in an effort to temporarily boost their stock prices as regular shareholder meetings concentrate next month. The purpose is to prevent investor losses in advance by informing about cases where companies with weak business performance or financial structure experience sudden changes in stock prices and trading volumes as the audit report submission deadline approaches.

The Exchange classified these into five main types. First is the management and governance type. These companies exhibit characteristics such as ▲ insiders including major shareholders and executives disposing of their holdings ▲ low major shareholder equity ratio and frequent changes in management leading to weak governance ▲ cases where the changed major shareholder is an investment association or a non-audited corporation whose actual entity is difficult to verify.

In fact, Company A boosted its stock price by repeatedly exposing false disclosures and exaggerated articles related to fundraising and sales based on investors' expectations of entering the biosimilar business, then the major shareholder sold shares to realize profits. This company was designated as a managed stock last March after receiving a qualified opinion due to audit scope limitation. It is currently under trading suspension following a rehabilitation procedure application.

There is also the fundraising type. These are companies that raise large-scale external funds through convertible bonds (CB), bonds with warrants (BW), and third-party allotment capital increases rather than direct fundraising from operating activities. In particular, many cases involved stock-related (private) bond issuances and third-party allotment recipients being investment associations or non-audited corporations whose actual entities are difficult to verify.

The business continuity type includes companies that frequently change investments in other corporations, business purposes, or trade names. Companies with poor financial structures should also be cautious. This includes companies with poor operating performance, excessive debt, and concerns over capital erosion. Additionally, companies repeatedly designated as investment caution stocks, market warning stocks, or non-compliant disclosure corporations also require attention.

The KRX Market Surveillance Committee plans to closely monitor and respond to sudden changes in stock prices and trading volumes of marginal companies without special reasons for signs of unfair trading. If there is a high suspicion of unfair trading, thorough investigations will be conducted, and the Exchange will closely cooperate with related agencies to ensure perpetrators are punished.

A KRX official said, "Investors are advised to refer to the above key characteristics of unfair trading related to marginal companies in the fiscal year-end settlement and refrain from follow-up trading," adding, "Investments without careful review may result in unexpected losses, so please proceed with caution."