Hallyu Holdings Under Fire: SEC Alleges Capital Markets Act Breach in Nasdaq Direct Listing
Violation of the Capital Markets Act, such as distribution of false information
Investment roadshow without submitting a securities report
They said they were investing in a business and paying off debt.
The Securities and Futures Commission under the Financial Services Commission decided to file a complaint with the prosecution and impose a fine on Hallyu Holdings for violating the Capital Markets Act during its listing on Nasdaq. Not only did they distribute false and exaggerated press releases, but they also falsely stated important information.
On the 6th, the Securities and Exchange Commission took measures such as filing a complaint with the prosecution and imposing a fine on Company A, which attracted funds from domestic investors for listing on the Nasdaq market, and its largest shareholder and CEO for illegal trading and violation of the obligation to submit a securities report, which are prohibited by the Capital Markets Act. It was announced that it had been decided.
The NASDAQ market is differentiated into three levels: Global Select Market, Global Market, and Capital Market. The company is finally listed on the capital market. According to the investment industry, the company that meets these conditions is Hallyu Holdings, the first domestic startup to be directly listed on Nasdaq.
As a result of the authorities’ investigation, it was revealed that Hallyu Holdings engaged in fraudulent trading practices, such as spreading false and exaggerated facts and falsely stating important information in the process of raising significant funds domestically for the success of an overseas initial public offering (IPO).
The company distributed to the media a press release that falsely stated that a large domestic securities company was planning to invest in the Nasdaq public offering and inflated the corporate value and expected sales without any objective basis. The securities company listed in the data never reviewed investment participation and did not correct the report despite requests for correction several times. In addition, even though it raised funds from an unlicensed investment brokerage firm right before listing on the condition that there was a high possibility of recovering the principal, it actively promoted it to the media as if institutional investors were making a normal investment of large funds through paid-in capital increase.
In the U.S. Securities and Exchange Commission (SEC) disclosure documents, such as the registration statement, it was stated that most of the public offering funds would be used for the company’s main business, but in reality, it was used to repay existing debt or return the investment funds of some investors.
Although Hallyu Holdings is unable to conduct recruitment activities because it has not submitted a securities report to the Financial Services Commission, it held investment briefings and road shows for investors in Korea to attract investment and distributed press releases to the media to encourage them to subscribe for stock acquisition. . The company’s stocks were traded over-the-counter in Korea even before listing on Nasdaq, and it took a considerable amount of time for investors who purchased unlisted stocks to receive them as stocks available for over-the-counter trading in the overseas stock trading accounts of domestic securities firms after listing. It was also confirmed that the company suffered investment losses due to stock price fluctuations as it could not be traded on the market immediately after listing.
The NASDAQ capital market is a market where relatively small companies are listed for the purpose of raising capital, so even companies with low equity capital or low net profit can be listed as long as they meet certain criteria. Accordingly, it is pointed out that it is necessary to invest carefully by checking the financial information and disclosures provided by the company.
The authorities were concerned that, like this case, many cases of unfair transactions were being discovered in which investors were deceived with untrue information related to the work of financial investment companies. Accordingly, we plan to discuss systematic response measures with the Financial Investment Association, including ensuring that accurate information is provided to public notices and the media and is not misused for unfair transactions.