Former Management of Rhyme Investment Destination 'HiSonic' Sentenced to Prison for 'False Disclosure'

Court: "Meticulous Pre-Planning... Crime Worsened Company's Financial Condition"

[Asia Economy Reporter Yoo Byung-don] The management of HiSonic (formerly G2 HiSonic), a KOSDAQ-listed company, who were prosecuted for illegally obtaining hundreds of billions of won from general investors through false disclosures, were sentenced to prison in the first trial.

The Criminal Division 13 of the Seoul Southern District Court (Chief Judge Shin Hyuk-jae) announced on the 7th that it sentenced former CEO Ryu (52) of HiSonic, who was charged with violations of the Capital Markets Act and the Act on the Aggravated Punishment of Specific Economic Crimes (aiding embezzlement), to five years in prison.

Co-conspirators Bae (48) and Kim (49) were each sentenced to three years in prison. All three defendants were also fined 10 billion won each.

Former CEO Ryu and others were indicted for issuing 20 billion won worth of bonds with warrants (BW) to general investors in 2016 and pocketing 19.4 billion won as illicit gains.

Investigations revealed that they publicly announced the funds were to be raised for expanding a factory in Vietnam, but this was entirely false. The raised funds were actually used to purchase shares from the largest shareholder, who was their opponent in a management dispute.

It was found that the crime was planned as tensions escalated in 2016 due to conflicts with Kim, who had newly become the largest shareholder, and fears that Ryu might be forced to step down as CEO.

In addition, former CEO Ryu and others were found guilty of aiding the embezzlement committed by the new management who took over during the urgent sale of the company amid deteriorating performance and accumulated losses in 2018.

The acquirer, Kwak (47), who took over the company from Ryu and others, acquired management rights through bonds without any equity capital and was caught misappropriating 18.6 billion won of HiSonic’s funds for personal use. Kwak was also sentenced to five years in prison by the same court and is currently serving his sentence.

The court stated, "The defendants, despite lacking sufficient equity capital, meticulously planned in advance and raised approximately 20 billion won through various fraudulent means, using the funds to acquire shares of the largest shareholder and secure management rights, which reflects the very serious nature of their crimes."

It added, "During the process of transferring management rights, they actively assisted (Kwak’s embezzlement) by handing over the company’s seal and business registration certificate to loan sharks, and as a result of these series of crimes, the company’s financial condition severely deteriorated."

All defendants have recently filed appeals.

Meanwhile, HiSonic, previously known as G2 HiSonic and RBK EMD before its name change, had Lime Asset Management invest over 10 billion won in convertible bonds (CB) of the company in July 2018. It was reported that Lime proceeded with the investment despite the company already suffering from management embezzlement and other issues, raising suspicions of mismanagement.