The Financial Supervisory Service said it detected many cases in which unlisted corporations failed to file a securities registration statement related to fundraising during preparations for an initial public offering and provided guidance on points to note.
On Feb. 19, the Financial Supervisory Service (FSS) said in materials titled "2025 disclosure violation actions and points to note" that it took 143 actions against a total of 88 companies last year for violating disclosure obligations under the Financial Investment Services and Capital Markets Act. That was up 13 from the previous year.
Of the violating companies, 31 (35.2%) were listed and 57 (64.8%) were unlisted corporations, with more unlisted corporations that have less disclosure experience.
Last year, major actions totaled 79, more than minor actions (64). Specifically, there were 50 penalty surcharges, 25 restrictions on securities issuance, and 4 fines. Actions for disclosure violations are divided into major actions such as penalty surcharges, restrictions on securities issuance, and fines, and minor actions such as warnings and cautions, depending on the impact on the market.
Disclosure violations by unlisted corporations were often identified during the IPO process. When making a rights issue and soliciting subscriptions from 50 or more persons (10 billion won or more), legal procedures must be followed, but a representative example was failing to recognize this and not submitting a securities registration statement. Most of these corporations were subject to penalty surcharges or had their securities issuance restricted for a certain period.
For corporations with fundraising or sales records, even when issuing securities to fewer than 50 persons, failing to impose resale restrictions triggers the obligation to submit a securities registration statement (deemed public offering), as well as the obligation to submit periodic reports such as business reports and reports on key matters, which is also a major type of disclosure violation.
The Financial Supervisory Service (FSS) said detections increased as the domestic stock market has been booming since last year and more unlisted companies are planning IPOs.
For listed companies, 35 disclosure violations were sanctioned, up 84.2% from the previous year (19). Most were KOSDAQ-listed companies, at 30. Violations of securities registration statements numbered only two, while there were violations of small public offering disclosure documents (12), periodic reports (11), and reports on key matters (10).
The Financial Supervisory Service (FSS) plans to strengthen ongoing guidance on recurring types of disclosure violations to help unlisted corporations that report difficulties due to a lack of disclosure experience, know-how, or dedicated staff. For small and midsize companies located in regional areas, the FSS also plans to provide on-site disclosure training by sending its staff directly.
In addition, the Financial Supervisory Service (FSS) plans to concentrate its disclosure review and investigation capabilities on major cases with significant impact on investor protection and the market, such as false entries in securities registration statements related to large-scale fundraising and violations of filing obligations.
An official at the Financial Supervisory Service (FSS) said, "Corporations preparing to list could face disruptions to their IPO schedule due to disclosure violations, so caution is required when issuing securities to a large number of people to raise funds."