Former CEO of KOSDAQ-listed company who sold shares early before 'disclaimer of opinion' faces trial

A former CEO A (61) of a KOSDAQ-listed company, who anticipated that the audit opinion on his company would be rejected and sold all his shares in advance to avoid losses, has been prosecuted. A rejection of the audit opinion can be a cause for delisting, which is considered bad news for a listed company.

Seoul Southern District Prosecutors' Office, Yangcheon-gu, Seoul.
Photo by Daehyun Kim kdh@

On the 11th, the Criminal Division 5 of the Seoul Southern District Prosecutors' Office (Chief Prosecutor Jo Jae-cheol) announced that A was indicted without detention the day before on charges of violating the Capital Markets Act for disposing of shares after learning undisclosed material information that the audit opinion would be 'disclaimed' during the financial statement audit.

According to the prosecution, A, who was serving as the CEO of a KOSDAQ-listed company, learned around February last year that the audit opinion would be 'disclaimed' because he did not comply with the external auditor's essential request for operating fund procurement. Accordingly, in March of the same year, before the announcement of the audit opinion rejection, he sold all 3.5 million shares he held in the company, avoiding a loss of approximately 1.34 billion KRW.

Typically, when it becomes known that a listed company’s audit opinion has been rejected, stock trading is immediately suspended and the stock price drops significantly. Knowing this, A sold his shares in advance to avoid losses, and the prosecution explained that ultimately, the losses were transferred to ordinary investors who had previously purchased the shares.

In particular, it was found that A circumvented direct disposal of shares to avoid detection by borrowing 2.5 billion KRW from another person to repay personal debts, then having the creditor conduct a forced sale of the collateral shares, thereby indirectly disposing of the shares.

A representative from the Seoul Southern District Prosecutors' Office stated, "We will strictly respond to financial offenders who disrupt market order, such as insiders of listed companies exploiting undisclosed information for personal gain, and will make every effort to protect investors."