KCGI Sued: "Sold DB HiTek Shares for Short-Term Gains... Losses to Shareholders"

DB HiTek Minority Shareholders Alliance Sues KCGI
"Claims of Hundreds of Billions in Profits and Sharp Stock Price Drop"
KCGI "Recovering Investment Funds Without Legal Issues"

The well-known activist fund KCGI has been sued by prosecutors on suspicion of causing losses to minority shareholders of semiconductor manufacturer DB HiTek.

Kang Sung-boo, CEO of KCGI. Photo by Hyunmin Kim

According to the financial investment industry on the 19th, the DB HiTek Minority Shareholders Alliance filed a lawsuit against KCGI with the prosecutors and submitted a petition to the Financial Supervisory Service, claiming that "KCGI deliberately threatened DB HiTek's management rights to gain short-term profits and caused losses to shareholders."

KCGI declared its intention to participate in management by purchasing about 7.05% of DB HiTek's shares in March last year, but about nine months later, at the end of December, it sold 5.63% of its shares to DB HiTek's parent company, DB Inc., stating that "governance improvements have been made."

The plaintiffs claim that KCGI sold the shares at a price about 10% higher than the market price at the time (66,000 KRW per share), earning hundreds of billions of won in profits, while DB HiTek's stock price plummeted, causing shareholders to bear losses.

The Minority Shareholders Alliance also alleges that KCGI colluded in advance with the DB Group to purchase shares solely aiming for the premium, and is reportedly demanding a thorough investigation.

KCGI denied the allegations as groundless. A company official emphasized, "The DB Group accepted many of our governance improvement proposals, and based on the judgment that our objectives were achieved, we decided to sell. It was a legally flawless exit (investment recovery), and the claim of prior collusion was impossible from the start."

KCGI is a private equity firm founded in 2018 by the famous analyst Kang Sung-bu, who serves as CEO. It is particularly well-known among domestic activist funds for its aggressive investments under the banner of improving corporate governance (decision-making processes) and protecting shareholder rights.

In August this year, it attracted attention in the financial investment industry by being selected as the preferred negotiator to acquire Hanyang Securities, a small and medium-sized quality securities firm.