Financial authorities decided to file a complaint against the second-generation owner of Shin Poong Pharm, Jang Won-jun, and its holding company, Songam, for avoiding a loss of 37 billion won by selling a large amount of stocks after being aware of the clinical failure of the new coronavirus infection (COVID-19) treatment in advance.
The Financial Services Commission (FSC) Securities and Futures Commission (SFC) stated on the 17th that it decided to file a complaint with the prosecution against the second-generation founder (former CEO Jang Won-jun) and the holding company of Shin Poong Pharm (Songam) for violating the prohibition on the use of undisclosed important information under the Capital Markets Act at its third regular meeting held on the 12th of this month.
The act of utilizing undisclosed important information prohibited by the Capital Markets Act refers to the behavior of insiders using undisclosed important information related to the operations of a listed company for trading of specific securities or allowing others to use that information. Those who have traded using undisclosed important information may face imprisonment for more than one year and a fine of 3 to 5 times the amount of unjust enrichment (from March 31, 2025, it may increase to 4 to 6 times). Depending on the amount of unjust enrichment, they may face enhanced punishment, including a maximum life sentence.
Songam is a family company owned by the founding family of Shin Poong Pharm, a KOSPI-listed company, and is the largest shareholder and holding company of Shin Poong Pharm. The name Songam was created based on the pen name of the late Jang Yong-taek, who was the father of the former CEO, Jang. In 2021, Shin Poong Pharm conducted domestic clinical trials for COVID-19 treatment development. However, it failed to meet the efficacy targets based on the primary endpoint in Phase 2.
According to the SFC, when the second-generation owner, former CEO Jang, learned of the Phase 2 failure, he disposed of 2 million shares of Shin Poong Pharm, which his family-run company Songam held, out of 12,821,052 shares, at a price of 84,016 won per share through off-market trading (block deal) before the information was made public in April 2021. This large sale allowed the owner family to gain 156.2 billion won in trading profits and avoid a loss of 36.9 billion won. At that time, Shin Poong Pharm's stock price had surged as its self-developed malaria treatment, Piramex, was included in the COVID-19 treatment clinical trial, but this block deal caused the stock price to plummet by more than 10%.
The SFC stated, “It is a case in which the actual owner of a KOSPI-listed company, who should set an example for capital market participants, instead took unjust enrichment by using undisclosed internal information not disclosed to the public,” and added, “We determined that the matter is serious and that it is necessary to report it to investigative authorities.”
The SFC indicated that if an insider traded while being aware of the information, it is considered as having utilized that information for trading unless there are special circumstances, and they may be punished regardless of profit and loss. In the past, only criminal penalties were possible for the three major unfair trading practices under the Capital Markets Act (use of undisclosed important information, price manipulation, and illegal trading), but since January 19 of last year, a penalty surcharge of up to two times the amount of unjust enrichment has also become possible.
Meanwhile, former CEO Jang is already on trial for allegedly creating a total of 9.1 billion won in slush funds using a method of inflating the raw material supply price or pretending to trade between April 2008 and September 2017 to receive the price difference. He was sentenced to prison in both the first and second trials.
The SFC stated, “We will continue to take strict action against insider trading and various unfair trading practices that utilize information asymmetry in the capital market to create a trustworthy capital market for investors,” and urged, “Listed companies should strengthen internal controls to prevent declines in investor trust caused by unfair trading by insiders such as major shareholders, CEOs, and executives.”