The financial authorities conducted a search and seizure of an NH Investment & Securities executive in charge who is suspected of reaping tens of billions of won in unfair gains by using nonpublic information related to tender offers. In the stock market, there had been repeated instances of a company's share price surging before a tender offer disclosure was released. This raised suspicions that information was being leaked in advance, and as the authorities searched and seized NH Investment & Securities, which has maintained a leading position in the tender offer market, the possibility that such suspicions are true is gaining weight.
According to the financial authorities on the 28th, the joint response team to eradicate stock price manipulation conducted a search and seizure of the executive's office at NH Investment & Securities and the departments related to tender offers that day. It is the joint response team's "case No. 2," formed by the Financial Services Commission (FSC), the Financial Supervisory Service, and the Korea Exchange (KRX) to stamp out unfair trading.
According to the authorities, the executive overseeing IB operations repeatedly conveyed information related to tender offers to colleagues and acquaintances, and they are suspected of earning about 2 billion won in unfair gains over about two years by using the tender offer information. The information the executive passed to acquaintances was found to concern 11 stocks for which NH Investment & Securities served as the tender offer manager.
Because tender offers are typically made at levels higher than the current share price, they are positive information for share prices. The authorities believe they accumulated shares in advance and, after the tender offer announcement, sold when prices rose to obtain unfair gains.
The financial authorities said they detected monetary transaction that appears to be stock trading funds between the executive and people around the executive before and after the tender offer announcements through trade analysis and fund tracing. They also confirmed circumstances suggesting that the unfair gains were shared. It was also identified that those who obtained tender offer information in advance used multiple borrowed-name accounts and rotated them to avoid the authorities' surveillance.
If the allegations prove true, the fallout is expected to be significant. NH Investment & Securities is the leading firm, accounting for more than half of the tender offer market recently. Of the 55 tender offers carried out from 2023 through the first half of this year, NH Investment & Securities managed 28 (51%). The tender offer for Korea Zinc shares conducted last year by the MBK Partners–Young Poong alliance was also handled by NH Investment & Securities.
If it is confirmed that the executive pocketed unfair gains by using nonpublic information, NH Investment & Securities likely will not avoid criticism for poor internal controls. The executive denies the allegations, however.
This is not the first time NH Investment & Securities has been investigated by the financial authorities in connection with tender offers. In Jul., the Financial Services Commission (FSC) conducted a search and seizure of the company to examine allegations that an NH Investment & Securities employee used nonpublic information. The employee who was searched at the time is also known to work on tender offers alongside the executive searched that day.
In the market, suspicions have continued to be raised that tender offer information is being leaked in advance. This is because there have been many cases where trading volume surged or share prices spiked before tender offers were announced.
The authorities plan strong sanctions if the allegations are confirmed. The joint response team said, "The use of nonpublic information is not a crime without victims; it seriously undermines the fairness and credibility of the capital market, and ultimately the damage falls on retail investors," and added, "We will ensure that acts by insiders at financial companies and listed firms who possess an informational advantage and undermine capital market fairness lead to stern criminal punishment and administrative sanctions."
The industry is watching closely to see whether this situation will affect NH Investment & Securities' application for a comprehensive investment account (IMA) business license. In Jul., NH Investment & Securities even carried out a rights offering of 650 billion won to meet the IMA licensing requirement of 8 trillion won in equity capital.
Some say the financial authorities' presentation of social credit evaluations as an IMA licensing criterion means this search and seizure could influence the authorities' assessment. A source in the securities industry said, "As the tender offer market has grown rapidly, it is true that internal systems and controls across the industry are lacking," and added, "As this is the joint response team's case No. 2, it warrants close attention."