[Q&A] Financial Supervisory Service: "Korea Zinc, Fully Utilizing Authority in Review, Investigation, Inspection, and Audit"

Financial Supervisory Service Issues Briefing on Korea Zinc
Exercising All Authorities of Review, Investigation, Inspection, and Audit

Korea Zinc, which is undergoing a management rights dispute, held an emergency board meeting at its headquarters in Jongno-gu, Seoul on the 30th. The company is expected to prepare countermeasures regarding the request by the Yeongpung-MBK Partners alliance to convene an extraordinary general meeting of shareholders. Photo by Jo Yong-jun

The Financial Supervisory Service (FSS) is exercising all its authority and conducting comprehensive supervision regarding the management dispute at Korea Zinc and its rights offering. The FSS has stated that it will respond strictly if any illegal activities are confirmed through the review of securities registration statements, investigations into unfair trading, inspections of rights offering underwriters, and accounting audits. In particular, it has indicated the possibility of referring the matter to the prosecution if criminal issues are identified.

Ham Yong-il, Deputy Governor of the Capital Markets and Accounting Division at the FSS, held a press briefing in Yeouido on the afternoon of the 31st and said, "We have a firm stance that falsehoods, neglect, and manipulative acts will never be tolerated in our capital markets, and we are maximizing the use of our legal authority in reviews, investigations, inspections, and audits," emphasizing this position.

The following is a Q&A with Deputy Governor Ham regarding the Korea Zinc issue.

△ What points were confirmed during the on-site investigation of Mirae Asset Securities? Do you believe that Korea Zinc’s management intentionally omitted the rights offering plan in the tender offer registration statement’s funeral plan section? When will the results be announced?

- Since the investigation started today, results cannot be produced immediately. We are examining contradictions between the tender offer and rights offering registration statements, and whether the rights offering plan was knowingly omitted. The registration statement did not include any financial plans. This is something to be confirmed through the securities firm. In the review of disclosures and investigations into unfair trading, we need to determine whether Korea Zinc intentionally delayed the rights offering disclosure during the tender offer process.

△ Did the on-site investigation of Mirae Asset Securities find any inappropriate aspects related to the rights offering?

- Mirae Asset Securities is both the tender offer agent and the rights offering underwriter. Therefore, Korea Zinc and Mirae Asset Securities are on equal footing, and both need to be examined. Regarding accounting, we are reviewing the appropriateness of accounting treatments and the possibility of violations by both Korea Zinc and MBK Partners-Youngpoong.

△ Mirae Asset Securities conducted the tender offer and rights offering simultaneously. What legal issues might this raise?

- From the perspective of Korea Zinc’s decision-makers, they announced plans to acquire and cancel treasury shares through borrowing, conducting the tender offer under the purpose of shareholder returns. Existing shareholders had to decide whether to participate in the tender offer, but the decision-makers might have known about the rights offering in advance. The tender offer registration statement indicated no financial changes such as rights offerings. If both facts were known, the registration statement contained false information or omitted important matters. From Mirae Asset Securities’ standpoint as the rights offering underwriter, civil liability may be less, but if fraudulent trading using deception is established, the securities firm could be seen as complicit. This is punishable, so the securities firm will also be scrutinized from an inspection perspective.

[Image source=Yonhap News]

△ What is the schedule for the investigation and inspection of Korea Zinc’s rights offering?

- From the disclosure review perspective, we check whether the contents of the securities registration statement are truthful and complete. The FSS does not have approval authority but has correction authority. If illegalities are found during the investigation, procedures involving the FSS, the Securities and Futures Commission, and the Financial Services Commission will follow. If matters related to fraudulent or unfair trading are confirmed, referral to investigative agencies will be prioritized for swift handling. Criminal proceedings will likely take precedence. Audits are a separate issue. This case involves the full use of FSS’s authority in review, inspection, investigation, and audit. It is difficult to specify when it will conclude.

△ Has the FSS not requested corrections to the rights offering securities registration statement?

- Regarding correction requests, there is a legal 10-day review period. Since the effective date is November 14, the FSS will decide on corrections before then.

△ Earlier, you mentioned that the possibility of fraudulent trading by deception related to Korea Zinc is very high. Is that correct?

- If fraudulent trading is confirmed, it is a straightforward issue. If Korea Zinc borrowed funds to acquire treasury shares and cancel them, and the board was fully aware and proceeded sequentially, then the existing tender offer registration statement omitted material facts or strongly suggests fraudulent trading. However, there is an issue of proof. This is the main focus of the investigation. The authorities have not yet determined it to be fraudulent trading; it means the investigation has just begun.

△ The rights offering securities registration statement limited subscription to 3%. Does this infringe on existing shareholders’ preemptive rights?

- Although courts have not accepted cases where limits were excessively set, such as 300 shares in Company H, precedents show that limits can be imposed. Previously, limits were set per subscriber. Currently, the limit is 3%, including related parties. This requires further review.