"Management's Connivance... Strict Measures Including Fines"
The Securities and Futures Commission under the Financial Services Commission has filed a complaint with the prosecution against Wellbiotec and related individuals on charges of accounting fraud, as they are currently under investigation by a special prosecutor's team for alleged stock price manipulation.
On October 29, the Securities and Futures Commission held a regular meeting and decided to refer Wellbiotec and three related individuals, including former CEO Koo Sehyun, to the prosecution on charges of accounting fraud, such as concealing losses from the sale of convertible bonds (CB). One former executive in charge was also reported to the prosecution. The decision on whether to impose fines on these individuals will be made later by the Financial Services Commission.
Wellbiotec acquired privately placed convertible bonds before maturity and sold them to related party Company A and others at prices significantly below fair value. However, the losses incurred in this process were not recognized in the financial statements. In addition, the company failed to disclose that the buyers were related parties.
The Securities and Futures Commission determined that this type of discounted CB sale was carried out repeatedly over several years. It also found that although the company incurred losses, it concealed them in its financial statements and inflated its net profit for the period.
Most of the treasury CBs sold to Company A and others were resold to the final buyer on the same day and then converted into shares. The Securities and Futures Commission estimates that if the final buyer sold the converted shares at market price, they would have realized considerable capital gains, as in many cases the stock price on the conversion date was double the conversion price. Losses from such transactions between 2019 and 2022 amounted to 47.7% of the company’s equity capital.
The Securities and Futures Commission stated, "We have determined that the accounting fraud was committed with the connivance and acquiescence of the management, who deliberately concealed and manipulated accounting information," and added, "We have taken strict action in accordance with relevant laws and regulations."
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