East Asia Holdings Faces Controversy Over Major Shareholder Selling Shares After Stock Price Rises Due to False Disclosure

[Asia Economy Reporter Jang Hyowon] After East Asia Holdings, a KOSDAQ-listed company, announced the acquisition of a Chinese hospital, its stock price rose, prompting the major shareholder to sell part of their shares. After the major shareholder sold the shares, the company corrected the announcement, stating that there was an error in the disclosure and that it had acquired a shoe industry town management company, not a hospital.

Capture of East Asia Holdings homepage.

According to the Financial Supervisory Service's electronic disclosure on the 11th, East Asia Holdings, a Chinese company listed on KOSDAQ, announced on April 12 through a disclosure titled "Subsidiary Incorporation of a Foreign Holding Company" that it would acquire a 51% stake in a corporation called Grand Empire International Group Limited. Previously, it had acquired 49%, and the announcement stated that it would acquire an additional 51% to incorporate it as a wholly-owned subsidiary.

The company disclosed that Grand Empire International is "a holding company established in the British Virgin Islands and owns two medical corporations within China."

East Asia Holdings designs and sells shoes, clothing, and accessories under the brands 'Chiuzi (Sports)' and 'ZAPPY (Casual)' in China.

Besides the shoe business, to enter the medical market, it acquired a 19.9% stake in Zigong Renji Hospital Co., Ltd., and last year, it also acquired an 84% stake in Luxe Heritage Management Limited, which holds management rights of the comprehensive medical hospital Yiyang Dehua Hospital Co., Ltd.

As a result, the market expected East Asia Holdings' medical business to expand through the acquisition of Grand Empire International. In fact, East Asia Holdings' medical business began generating sales in earnest from the fourth quarter of last year.

Due to expectations for the medical business, the stock price surged. East Asia Holdings' stock price hit the daily upper limit consecutively from April 13 to April 15, the day after the announcement of the incorporation of Grand Empire as a subsidiary. The price rose from 179 won to over 400 won in three trading days, a 123% increase.

As the stock price rose, East Asia Holdings' largest shareholder, CEO Jeong So-Young (Ding Shao Ying), sold 2 million shares on the market on May 2. The selling price ranged from 301 to 308 won, about 70% higher than the price before the Grand Empire acquisition announcement.

The problem was that Grand Empire International was revealed not to be a company owning medical corporations. On May 17, East Asia Holdings corrected the previous disclosure regarding Grand Empire from "owning medical corporations" to "real estate management of the shoe industry in Jinggang, China, and supply chain and brand management operations in Jinggang City."

The reason for the correction was stated as a "simple typographical error." Typically, a simple typographical error refers to spelling or character mistakes. However, East Asia Holdings claimed it was a simple error despite the content being entirely unrelated. Moreover, it took over a month to make the correction, during which the major shareholder sold shares and realized profits.

Regarding this, an East Asia Holdings representative said, "The content we instructed the disclosure agent to convey did not include that Grand Empire owns two medical corporations within China," adding, "This is judged to be a mistake on the part of the disclosure agent."

They further added, "On February 21, when the initial paid-in capital increase decision for Grand Empire was made, we announced through a press release that Grand Empire's subsidiary is a company holding the operation and management rights of the shoe industry town."

However, concerning CEO Jeong So-Young's stock sale, the company stated, "It was a matter decided due to personal financial needs and is unrelated to the company."

Meanwhile, East Asia Holdings had its trading suspended in early 2019 for failing to appoint an auditor and submit an audit report but resumed trading in August 2020.