Celltrion CEO is facing sanctions from regulators for allegedly manipulating the stock price. Affiliates received loans back by equity stake in Celltrion and have to pay back loans or provide more collateral should Celltrion’s stock price fall. “That’s why Seo attempted to keep its stock price high.”

September 17, 2013 Leave a comment

2013-09-16 19:08

Celltrion CEO under scrutiny

By Na Jeong-ju

Seo Jung-jin, CEO of the country’s largest bio firm Celltrion, is facing sanctions from regulators for allegedly manipulating the stock price of his company. The fraud case represents a dramatic fall from grace for Seo, once called the living legend of the bio industry. He founded Celltrion in 2002 in the midst of a venture boom, and nurtured it into the biggest firm on the tech-laden KOSDAQ bourse in terms of market capitalization. But he is now on the verge of becoming another venture company CEO who may end up in prison.
According to financial regulators Monday, Seo allegedly engaged in illegal stock trading, along with some friendly investors, early this year, using insider information. “We’ve found evidence showing Seo and some others bought shares just before the firm unveiled favorable measures for stock investors,” an official from the Financial Supervisory Service (FSS) said. “Seo is also suspected of having misused his status to inflate Celltrion’s stock price. He claims it was to defend his firm from short-selling investors, but that shouldn’t be an excuse.”The Securities and Futures Commission, which is under the Financial Services Commission, will hold a meeting next week to decide on penalties for Seo, sources said. It will then refer the case to the prosecution.
Seo may face charges of  stock price manipulation and engaging in insider trading.
The investigation began in April after Seo vowed to sell his entire stake and find a new owner for Celltrion in an effort to protect the firm from stock price manipulation by short-selling investors.
At the time, he criticized regulators for taking little action against short-selling, saying his firm and the rights of minority shareholders have been damaged for years by speculative traders.
However, regulators concluded that there was no manipulation of the stock price by short-selling investors. They said the portion of short-selling in the firm’s stock transaction was lower than those at other Korean firms, such as POSCO and LG Electronics.
“Our conclusion is that it was Seo who manipulated the stock price. He inflated Celltrion’s stock price because some of its affiliates, including Celltrion GSC, had received loans backed by their stakes in the bio firm from banks,” an FSS official said.
“The affiliates had to pay back loans or provide more collateral should Celltrion’s stock price fall. That’s why Seo attempted to keep its stock price high.”
The firm, however, denied these claims.
“It is true that we were attacked by short-selling investors. They deliberately distorted prices by spreading false rumors and gained profits through illegal trading,” the firm said in a statement. “We can’t accept the FSS’s conclusion that there was no manipulation of the stock price by short-selling investors.”
The firm also said Seo has never engaged in illegal stock trading.
FSC officials, however, claim that Seo scooped up shares just before the company announced a share buyback plan in April. One day later, it unveiled another plan to issue new shares. After these announcements, the firm’s stock price skyrocketed.

Filed under Investing Process, Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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