[비즈한국] As the role of the Financial Supervisory Service (FSS) has expanded under the Yoon Suk Yeol administration, a set route—where FSS investigations lead to prosecution and indictment—has emerged. Speculation is now mounting that Korea Zinc010130 will be the next target of such an investigation. In late October last year, the FSS already referred Korea Zinc's management to the prosecution via the "fast-track" method on charges of violating the Capital Markets Act regarding the company's 2.5 trillion won capital increase.
Since FSS Governor Lee Bok-hyun took office, cases such as the Edison Motors stock manipulation, the Kakao Group incident, and various financial accidents at banks have all been referred to the prosecution via the fast-track process, eventually leading to indictments. Consequently, the possibility that the Korea Zinc case will also proceed to a full-scale prosecution investigation is being widely discussed.
Korea Zinc 'Referred' While MBK 'Reports' Are Denied
The FSS’s Capital Market Special Judicial Police stated that, following their investigation, they discovered evidence of unfair trading practices by Korea Zinc's management and board of directors during the process of deciding on a 2.5 trillion won paid-in capital increase for shareholders on October 31 last year, and subsequently referred the case to the prosecution via the fast-track method.
Between October 4 and 23 of last year, amidst a dispute with the MBK Partners-Young Poong000670 alliance, Korea Zinc's management conducted a public tender offer for 2,331,302 treasury shares at 830,000 won per share to defend their management rights. During the period from October 14 to 29, which partially overlaps, they also conducted due diligence for a capital increase through Mirae Asset Securities006800. However, in their tender offer registration statement, Korea Zinc's management stated that they had "no plans to change the financial structure in the future."
The FSS judged that this series of processes could violate the Capital Markets Act and demanded that the management submit a corrective filing. Korea Zinc withdrew its capital increase decision two weeks later, in November last year. However, the FSS determined that the allegations of false disclosure constituted unfair trading under Article 178 of the Capital Markets Act, and requested a prosecution investigation after further inquiry.
Article 178 of the Capital Markets Act stipulates that "no person shall use unfair methods, rumors, or stratagems (deceptive plans) when trading financial investment products such as stocks." The FSS’s position is that if Korea Zinc's management planned the capital increase in advance while proceeding with the tender offer, they essentially provided false information to the market, which is punishable.
Will the Scope of Investigation Expand?
At the beginning of the new year, reports emerged suggesting that MBK Partners would also be investigated by the prosecution. One economic media outlet reported on the 8th that "the FSS has uncovered evidence that MBK misused undisclosed consulting information acquired from Korea Zinc for a hostile M&A, and has referred this to the prosecution." The report suggested that authorities, keeping the possibility of price manipulation open, requested a prosecution investigation into the mysterious heavy sell-offs that caused the stock price to drop on the final day of the Young Poong-MBK tender offer.
While the report claimed the FSS requested the prosecution to "investigate both sides of the dispute," the FSS responded aggressively to these claims. The FSS refuted the report, stating, "This content is malicious and differs from the facts," adding that they are "considering whether to launch an investigation into the dissemination of this false information." This reaction takes into account the upcoming shareholder meeting on the 23rd, where the MBK-Young Poong alliance and Chairman Choi Yun-beom's side are expected to engage in a proxy battle over board appointments.
Legal circles suggest that once the dispute settles, there is a possibility of investigations into Mirae Asset Securities, which served as the lead underwriter for Korea Zinc’s capital increase, and KB Securities, the co-underwriter. The FSS already conducted on-site inspections of both securities firms last October, intending to verify whether they were aware of the capital increase plan in advance.
There is also speculation that the issue could expand into civil litigation. Article 179 of the Capital Markets Act stipulates that "the board of directors that spearheaded unfair trading must compensate investors." Korea Zinc's stock price, which had soared past 2.4 million won, is currently trading in the 860,000 to 870,000 won range as of the 13th. Observers note that depending on the outcome of the criminal case, lawsuits from retail investors seeking to hold the company accountable for the stock price collapse could follow.
A prosecutor-turned-lawyer with experience at the FSS remarked, "Since Governor Lee Bok-hyun took office, the FSS has effectively functioned as a 'law enforcement agency' by conducting primary investigations into listed companies. A clear route has been established where the FSS refers cases via fast-track, and the prosecution investigates and indicts." He predicted, "Since the fast-track process has effectively come to mean 'an investigation is mandatory,' it is highly likely that the prosecution will soon unsheathe its sword, including through search and seizure warrants, regarding the Korea Zinc management dispute."