[At the Crossroads] Amritzi ⑤ Suspicious CB Transactions... Allegations of Kickbacks Involving Daiju Accounting Auditor

Issued 3.9 Billion Won in CBs to Acquire Loss-Making Business Rights...
Suspicions Involving Actual Owner
CBs Also Traced to Accounts Suspected to Be Under Auditor’s Borrowed Name

Suspicions have been raised that Amritzi, a KOSDAQ-listed company, engaged in questionable convertible bond (CB) transactions with corporations related to its actual owner. Furthermore, there are indications that these CBs ended up with a shell company suspected to be under the name of a director from Daiju Accounting Corporation, Amritzi's external auditor.

According to the Financial Supervisory Service’s electronic disclosure system on September 19, Amritzi issued its 28th round of convertible bonds (CBs) worth 3.942 billion won (3 million US dollars) on January 16 last year. The recipient was a US corporation named EK LINE, INC. The CEO, Kim Jaeshin, was disclosed as holding 100% of the shares in this company.

Previously, Amritzi acquired the intangible business rights for the “clothing wholesale business” from EK LINE for 3 million US dollars. The payment for this acquisition was made using CBs in lieu of cash.

The clothing wholesale business acquired from EK LINE appears to have generated little to no profit, or even caused further losses for Amritzi. Last year, Amritzi’s operating loss from its clothing business was 7.76 million US dollars (about 1.08 billion won), which was an increase of approximately 9% compared to the previous year. Despite new revenue from the business, losses still grew.

The reason for issuing CBs to acquire such a business is believed to be a secret contract between EK LINE and Amritzi’s actual owner.

According to a source familiar with the company, a few days before the issuance of the 28th CBs-on January 9 last year-Kim, the largest shareholder of EK LINE, signed a contract to sell 51% of EK LINE’s shares to ZOE MANAGEMENT for 2.6 billion won. The payment was to be made in Amritzi CBs. It is understood that CBs worth 2.6 billion won from the 28th issuance were transferred to Kim, while the remaining CBs went to ZOE MANAGEMENT.

ZOE MANAGEMENT is known to be a corporation whose actual owner is Hong Seokpil, the former CEO of Amritzi. Hong stepped down from his role following a dismissal recommendation from the Financial Supervisory Service. Nevertheless, he is said to have continued to be involved in Amritzi’s management alongside Lee Ho, the husband of Byun Miran, who is the 100% largest shareholder of Amritzi’s largest shareholder, Lux Hoover.

The source claimed that the financial dealings between EK LINE and Lee led to this CB transaction by Amritzi. According to the source, Cornerstone Apparel, operated by Lee, owed 2 million US dollars (about 2.6 billion won) to EK LINE, and this debt was repaid with Amritzi CBs.

Notably, there are indications that some of the CBs issued in this manner ended up with a corporation related to Kang, a director at Daiju Accounting Corporation, Amritzi’s auditor. According to the source, on January 23 this year, CBs worth 1.342 billion won from the 28th issuance-excluding the 2.6 billion won received by Kim of EK LINE-were converted. The parties exercising conversion rights were ZOE MANAGEMENT, JSGF Partners, Song, Jang, and Lee.

The source pointed out that JSGF Partners was a corporation previously led by Kang’s younger brother. If an auditor holds CBs of the company being audited, there is a potential conflict of interest, as it would be impossible to provide an impartial audit opinion. This also raises concerns about the lax internal controls at Daiju Accounting Corporation. In addition, suspicions have been raised that Song, Jang, and Lee may have acted as allies of the largest shareholder, Lux Hoover, at Amritzi’s extraordinary shareholders’ meeting, and that their accounts may in fact be borrowed-name accounts of the previous management.

In response, a Daiju Accounting Corporation representative stated, “Director Kang has already resigned, and the company has no official position to express regarding this matter.”

Amritzi’s actual owner, company representatives, and Director Kang were asked several times to respond to these suspicions, but did not provide answers.