The shareholder platform 'Act (operated by Conduit),' which advocates for the protection of minority shareholders, has come under suspicion for entering a monetary contract with one party during a management rights dispute and organizing solidarity on behalf of minority shareholders.
From the perspective of minority shareholders, it is effectively a backstab. They believed that they would support the side that benefits minority shareholders after hearing both sides, but they ended up supporting a force that pays a monetary reward. However, this kind of behavior faces difficulty in being sanctioned under current laws, raising concerns about regulatory blind spots.
According to the financial investment industry on the 8th, the Act operating team received consulting fees from Korea Zinc in April of last year, before Young Poong and MBK Partners began their full-fledged equity competition, on the condition of providing services to Korea Zinc. It has been reported that they emphasized the influence of Act, which is a platform for minority shareholders, during this process.
According to materials released by Young Poong, Act later changed part of the service contract signed with Korea Zinc to Young Poong Precision Corporation, a special affiliate of Chairman Choi Yun-beom, and also proceeded with discussions for entry into the Young Poong board.
Act is known as a platform that helps minority shareholders gather to voice their opinions. However, with the allegations regarding the consulting contract with Korea Zinc surfacing, there are voices of criticism suggesting that it was not for the benefit of minority shareholders but to sway public opinion on behalf of the contracting party.
In response to these allegations, Act's representative Lee Sang-mok explained, "It is true that discussions like 'to what percentage will we gather voting rights' can arise during the working process, but in a situation where one cannot be 100% sure, what company would one go to and make such statements?"
Lee continued, "The reason for supporting Korea Zinc was that, from the perspective of minority shareholders, the shareholder return rate was as high as 78%, which makes it suitable for being a 'model case.'" Korea Zinc also stated, "We only signed a contract for consulting services related to the shareholder meeting among various services provided by the Act operator Conduit."
There is an opinion that if Act has simultaneously conducted consulting for the minority shareholders of related corporations while entering into consulting contracts with companies involved in management rights disputes, it could present legal issues. This could be viewed as a form of deceptive conduct.
Kwak Jun-ho, a lawyer at Cheong Law Firm, noted, "The Act platform was created with the intention of allowing minority shareholders to exercise their shareholder rights fairly, and using this to side with one party could be considered a deceptive act."
However, there are not many means for financial authorities to sanction such business practices. In the U.S., various fraudulent activities that undermine market fairness are comprehensively regulated under the 'comprehensive anti-fraud' clause of federal securities laws. This comprehensive nature allows for the regulation of new types of fraudulent conduct.
Korea has rules against fraudulent trading practices modeled after this clause, but it must be proven that information related to voting rights significantly influenced investor judgment. This means that just gathering minority shareholders' voting rights and entering into consulting contracts alone is difficult to view as fraudulent trading.
The fact that the consulting business for voting rights is not classified as a regulated sector under capital markets law is also a reason why financial authorities find it difficult to take action. A financial authority official explained, "In the U.S., there are regulations that prohibit engaging in fraudulent activities in connection with proxy voting based on the comprehensive anti-fraud clause, but Korea currently has no such provisions, and under existing laws, the consulting business for voting rights is not a regulated sector."
In this regard, on the 5th, Act announced that it would immediately disclose any contracts with companies, rather than shareholders, in the future to enhance the transparency of the platform.