Kosdaq reinforces the restriction on fraud registration

If the fact is discovered that a major shareholder reports fraud dispersion of the ownership for the inspection of Kosdaq registration, the item will be kicked out of Kosdaq market and classified as subject to supervisory.

Additionally, the shareholder should repurchase the all of shares dispersed and possess for two years.

At 8th, Financial Supervisory Commission (FSC) announced that a reformed measure will be practiced from 16th because a major shareholder of E Coin gained illegal profits by fraud dispersion of shares in last July.

The main improvement prepared by FSC is that if a company reports fraud application to satisfy the registration assessment for Kosdaq such as window-dressing, it will be subject to cancel of Kosdaq registration.

Even is its is not the subject to be cancelled from the registration, if it reports fraud facts, it will be classified as supervisory item to protect investors.

If it is classified as a supervisory item, it is suspended to trade for three days, and if the shares are repurchased within 6 months times, the registration will be cancelled automatically.

If a major shareholder is discovered for fraud dispersion of the possession by pseudo accounts he/she should repurchase the shares considering the amounts and number of the shares.

For example, if a holder received 1 billion won by selling 100 thousand shares of pseudo account, 10,000 won per share. △ the shareholder should repurchase 200 thousand shares if the price drops to 5,000 won △ should repurchase 100 thousand shares if the price increases to 15,000 won.

Repurchased and possessed shares at that time can’t be sold for two years times.

Until now, the major shareholder is just restricted to sell shares for two yeas times independently from the fact of discovery of fraud dispersion of possession. So it will be very difficult to gain profits by selling of fraud dispersion of possession in the future.

FSC regulated that the company should disperse more than a particular % of shares after applying registration assessment △ if dispersion is less than 30% before applying registration assessment, the company should disperse more than 20% additionally by public subscription △ if dispersion is more than 30% before applying registration assessment, the company should disperse more than 10% additionally.

Kim Young-hwan, the Senior Officer for Supervisory for security mentioned “this improvement will prevent profits from fraud dispersion, but is difficult to apply the improved regulation retroactively to E- Coin illegal profits case.”

Dong-Won Kim daviskim@donga.com