[비즈한국] The first-instance trial of former Celliveri CEO Cho Dae-woong268600 on charges of violating the Capital Markets Act (fraudulent and unfair trading, etc.) and breach of trust under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes was held at the Seoul Southern District Court on the 11th. Although Celliveri entered the KOSDAQ market in November 2018 as the first company listed under the 'growth-track' special provision, it was delisted last July after receiving a 'disclaimer of opinion' from an external auditor in March 2023 due to allegations of fraudulent trading by management and mismanagement.
As a result, approximately 50,000 shareholders claim to have suffered financial losses exceeding 1 trillion won. The trial drew such intense interest that around 50 Celliveri shareholders gathered, necessitating the opening of an unprogrammed relay courtroom. The shareholders expressed fierce opposition by submitting a petition urging the revocation of the former CEO's bail and his immediate court detention.
Court Demands 'Objective Proof of Fund Flow'... Prosecution Alleges 'Misappropriation' vs. Defense Argues 'Management Judgment'
The main point of contention in this trial was objective financial transaction records to prove whether the 70 billion won raised through a paid-in capital increase in 2021 was misappropriated for the acquisition of Ajin Clean (now Celliveri Living & Health) instead of the original purpose of new drug development. The court demanded proof through objective materials, stating, "The key is whether the actual flow of money can be tracked through account transaction history, rather than simple statements or claims."
The prosecution and former CEO Cho clashed sharply on this. The prosecution argued, "Excluding the 7.2 billion won that was in ordinary deposit accounts at the time, the vast majority of funds were tied up in financial products such as short-term bonds and could not be used freely within the contract period," adding, "Analysis of basic accounting data and fund flow data confirms that the newly raised funds were used for the acquisition of Ajin Clean." They further pointed out the intent of fraudulent trading, stating, "The company distributed a funding plan to shareholders claiming the money would be used for clinical and non-clinical R&D, but in reality, it was entirely diverted to acquire a cosmetics company."
Conversely, the defense team for former CEO Cho countered that it cannot be concluded that false public disclosures were made at the time based on post-facto fund flows. The attorney for former CEO Cho rebutted, "As of September 2021, Celliveri held approximately 45 billion won in liquid assets," adding, "The short-term bonds where the funds were invested were products that could be terminated early at any time, and in fact, bonds were sold to make payments."
The attorney also argued, "A CEO only understands the possibility of fund execution by looking at account balances in the books; they cannot know the detailed fund flow of every specific account," and continued, "It is a logical leap to infer from the post-facto result of using some of the capital increase funds that the fundraising plan was falsely disclosed from the beginning to deceive investors and use the funds elsewhere."
Shareholders Outraged: "What is the Law For!"
After the morning session, minority shareholders outside the courtroom expressed intense anger at the defense's arguments. A female shareholder in her 50s, identified as A, said, "I had to hold myself back from shouting at every single word coming out of the courtroom. We trusted the company's disclosures 100%, but if they say now that the disclosures were lies, who on earth are we supposed to trust?"
She particularly criticized the defendant's attorney for calling the alleged personal use of company funds by the former CEO a 'customary practice,' saying, "If all listed companies do that, shouldn't those practices be punished first? Even if a lawyer is defending someone, there are things that should and shouldn't be said."
There was an even more heated reaction regarding the private use of corporate cards, which is considered an example of the former CEO's moral hazard. Another female shareholder in her 50s, B, cited internal reports, stating, "The drinking and bread bills run up by the former CEO while hanging out with room salon employees or acquaintances reached millions of won, and he even boasted about it by posting pictures in a KakaoTalk group chat. Squandering company money on personal entertainment while collecting money from shareholders under the guise of new drug development is clear-cut deception."
Yoon Joo-won, who leads the Celliveri minority shareholder union and became the CEO of Celliveri through an extraordinary general meeting last April, requested severe punishment for the former CEO in a victim statement at the end of the trial. CEO Yoon appealed, "The defendants are continuing with false excuses, claiming they used existing liquid assets even after misappropriating 70 billion won raised for new drug development to acquire a cosmetics company. Please rectify the justice of the capital market by immediately detaining the main culprit, Cho Dae-woong, who is causing concerns about evidence destruction and flight while ignoring the blood and tears of shareholders."
The prosecution requested a sentence of 30 years in prison, a fine of 250 billion won, and a forfeiture of 67.6 billion won for former CEO Cho. The reasons given for the sentencing request were the extreme gravity of the case, with the illicit proceeds amounting to 67.6 billion won, the defendant's denial of most charges with no signs of remorse, and the fact that no recovery for victims has been made. They also pointed out that despite the responsibility required in operating a company as the first growth-track listed firm, he easily raised funds after listing by issuing convertible bonds and convertible preferred shares.
In his final statement, former CEO Cho briefly said, "I apologize to the shareholders," adding, "If it is found that I have committed a crime under criminal law, I will accept the punishment." The sentencing is scheduled for August 20 at 11 a.m.
Immediately after the prosecution's sentencing request, some shareholders in the gallery sobbed and burst into tears. Female shareholder C, in her 50s, whom we met outside the court, said calmly, "Shareholders have suffered a lot while the trial has been going on for over a year. The sentence may be different from the request, but I am grateful that the prosecution saw this as a serious enough crime to request such a heavy sentence." Male shareholder D, in his 50s, exclaimed, "I don't know why he is apologizing now after mocking and sneering at shareholders all this time."
The Bitter Fall of a 2 Trillion Won Promising Bio-Company
Celliveri was once a promising bio-company with a market cap exceeding 2 trillion won on the KOSDAQ, developing COVID-19 and Parkinson's disease treatments based on its proprietary TSDT (Targeted Intracellular Delivery Technology) platform. However, sales remained sluggish due to a lack of progress in technology exports or clinical development for new drug candidates, and the company failed to meet the minimum revenue requirements to maintain its listing. Growth-track listed companies are designated as administrative issues and face delisting if annual revenue is less than 3 billion won starting from the fifth year of listing.
The prosecution determined that to escape the risk of delisting, former CEO Cho pushed for the acquisition of Ajin Clean, a wet wipe and cosmetics manufacturer, in November 2021, and in the process, committed fraudulent trading by misappropriating funds from a paid-in capital increase raised under the pretext of new drug development.
Adding to this, the moral hazard of the management while the company's financial state was rapidly deteriorating pushed the shareholders' anger to its peak. Former CEO Cho is facing serious charges of breach of trust, including squandering over 1 billion won of personal expenses at bars using corporate cards, allowing his mother to use a company credit card, and providing top-of-the-line luxury cars such as a Mercedes-Maybach.
Eventually, Celliveri's stock trading was completely suspended in March 2023 after receiving a 'disclaimer of opinion' from an external auditor. During this process, former CEO Cho was even engulfed in allegations of evading losses by pre-emptively disposing of his holdings through borrowed-name accounts using non-public information prior to the disclosure.