[Exclusive] 'Ppeongtwigi Listing' Controversy Surrounding Padu, Insider Trading Allegations Detected 'Under Investigation'

Internal Employee Trading and Information Leak Suspicion
Initial Institutional Investor Private Equity Fund Also Raided

The financial supervisory authorities are intensively investigating signs of insider trading at Pado, a fabless (semiconductor design specialist) company embroiled in controversy over an inflated IPO.

According to the financial investment industry on the 9th, the Financial Supervisory Service’s Capital Market Special Judicial Police (Special Judicial Police) and the Southern District Prosecutors' Office are investigating illegal trading activities by insiders at Pado. To this end, they conducted raids on Pado and NH Investment & Securities and Korea Investment & Securities, which underwrote Pado’s IPO, followed by a three-day raid and ongoing investigation of Forest Partners, an early institutional investor.

It is interpreted that there is a possibility that internal information from Pado flowed through employees to Forest Partners. Earlier, the Financial Supervisory Service summoned Pado and Forest Partners consecutively for investigation in early February. Since then, under the direction of the Southern District Prosecutors' Office, the investigation appears to be accelerating.

Forest Partners had already sold shares of Pado in August, September, and November of last year. In August, when Pado went public, they sold 4.6% of their initially held 11.54% stake, recovering about 65.2 billion KRW. Between November 2 and 8 last year, funds established by Forest Partners, including Sequoia Tree New Technology Business Investment Association and FP Fine Tree 1 and 2, sold 1,245,361 shares of Pado (about 2.6%) on the market, cashing out 41.9 billion KRW. They sold a large volume of shares right before the announcement of Pado’s 'earnings shock' disclosure after the market closed on November 8. The next day, Pado’s stock price immediately closed at the lower limit of the price range. The following day, it dropped more than 20%, falling from the 30,000 KRW range to the mid-10,000 KRW range.

The Financial Supervisory Service’s investigation into Pado is expected to conclude soon. A senior official from the Financial Supervisory Service explained, "The Pado investigation is expected to be completed within one to two months." Regarding the matter, a Pado representative responded, "We are not aware of what charges the authorities are investigating." Forest Partners did not respond to Asia Economy’s inquiries for fact verification.

Entrance of NH Financial Tower, where NH Investment & Securities headquarters is located.
[Image source=Yonhap News]

The financial supervisory authorities are focusing on the Pado case to warn against the widespread practice of inflating valuations through exaggerated performance in the domestic IPO market. The criticism is that the IPO system is being used mainly for profit realization by corporate executives and investors rather than serving its original function as a capital-raising channel for companies. In particular, the technology special listing system is also viewed critically. Given that it is based on a technology evaluation, it is problematic to present only rosy forecasts without concrete estimates, even if it is difficult to predict performance. The Financial Supervisory Service formed a related task force (TF) following the Pado incident last year and plans to disclose specific improvement measures in the second quarter of this year.

In fact, Pado, a semiconductor design specialist for data centers, entered the KOSDAQ market last August through the technology special listing. At that time, it was recognized for its technological capabilities and attracted attention as a 'unicorn' (a startup valued at over 1 trillion KRW) in the semiconductor sector. However, its stock price plummeted sharply after disclosing results below expectations. According to Pado’s securities registration statement, the estimated annual sales for last year were 120.2 billion KRW, but the sales for the second quarter, when the IPO was actively underway, were only 59 million KRW. This raised suspicions that the company deliberately concealed poor performance and rushed the listing. The lead underwriters, NH Investment & Securities and Korea Investment & Securities, were also criticized for not conducting proper due diligence on Pado.

Meanwhile, as of the closing price on the 8th, Pado’s stock price was 18,800 KRW, down 39.4% from the public offering price of 31,000 KRW. It is also far below half of the intraday high of 47,100 KRW recorded on September 12 last year.