Paduga, which was embroiled in controversy over its 'inflated listing', was found to have received funds from investors while hiding the fact that the contracts were severed just before its listing. In the process, company executives sold some of their shares to pocket personal gains. The Financial Supervisory Service (FSS) has reported that NH Investment & Securities, which assisted Paduga's listing, conspired with Paduga in some aspects of determining the public offering price and has forwarded the case to the prosecution with the opinion of 'indictment' involving individuals related to both companies.
On 22nd, the special criminal investigation unit of the FSS announced the results of its investigation into Paduga under the direction of the Southern Seoul District Prosecutors' Office. While Paduga claimed it would earn over 100 billion won, it failed to earn even 400 million won in six months. This raised suspicions that Paduga concealed its performance to receive a favorable valuation at the time of listing, an incident confirmed by the FSS last year.
According to the FSS, Paduga signed contracts with existing investors to list above a certain price before its listing. This was done to return investment profits to them. However, major clients reduced or completely halted orders to Paduga prior to its listing in 2022. Consequently, the possibility of listing at a value exceeding the targeted corporate value promised to existing investors diminished.
In response, Paduga's management proceeded with fundraising (pre-IPO) last February, just before applying for the preliminary listing review, while concealing the facts of the order reduction and suspension. In this process, some sold their shares in the company to realize personal trading profits.
Subsequently, during the submission process of the securities registration statement for the preliminary listing review and fundraising between March and June last year, they calculated the expected sales without reflecting the impact of the significant drop in future sales due to the halt of orders from major clients. This sales figure was then used to determine the offering price. The FSS has judged that NH Investment & Securities, Paduga's underwriter, partially conspired in this.
There were no significant effects until shortly after Paduga went public, but the problem arose as quarterly results were revealed. This was because the actual performance was significantly below the expected performance presented during the listing process. As a result, the stock price dropped by 45% over three days following the results announcement and has not yet recovered to the level prior to the announcement.
In response, the FSS enhanced the responsibilities of underwriters to restore trust in the initial public offering (IPO) market. It standardized the items, methods, and verification procedures for due diligence by underwriters. It also established internal criteria to prevent the use of excessively optimistic estimates or the selection of inappropriate comparable companies when calculating the offering price.
The FSS also revised the disclosure format of the securities registration statement to detail the basis for calculating financial estimates. It mandated that provisional sales figures and operating profits be recorded up to the month preceding the submission of the statement. Additionally, it built a system for mutual sharing of important information with the Korea Exchange, which handles the preliminary listing review.
Pre- and post-listing accounting audits have also been strengthened. Corporations intending to list with a valuation of over 1 trillion won will undergo a comprehensive audit, while those required to submit business reports will be selectively audited based on financial ratios. The FSS will also conduct post-audits for companies whose stock prices or operating performances dropped sharply immediately after listing.
The FSS warned that "if there are false entries in the documents or misrepresentations, it may constitute a violation of the Capital Markets Act" and noted, "If the differences between the estimated performance projected before listing and the actual performance after listing are significant, stock price volatility may increase."