South Korea’s Financial Supervisory Service (FSS) referred Fadu, a fabless semiconductor startup, and officials from NH Investment & Securities, the lead underwriter of the company’s initial public offering (IPO), to prosecutors with a recommendation for indictment.
The allegations include inflating the public offering price while concealing critical information, including the suspension of key transactions and weakened business relationships, during its KOSDAQ listing in August last year.
Fadu and its underwriters estimated annual sales of 120.2 billion won ($92.4 million) for 2023 in the securities filings submitted ahead of its IPO last year, according to the FSS. But by the end of 2022, orders from major clients had decreased significantly or stopped altogether, and sales had dropped sharply.
The FSS claims Fadu allegedly concealed these unfavorable projections and successfully secured IPO funds in February last year. The chip startup did not adjust sales forecasts during the pre-IPO review and securities registration filing process to reflect recent sales declines. Fadu achieved a market valuation exceeding 1 trillion won when it went public on the KOSDAQ in August last year.
However, the company’s actual performance fell short of projections. In its quarterly report disclosed in November last year, Fadu reported 59 million won in sales in the second quarter, and 320 million won in the third quarter. After this information was made public, Fadu’s stock price plummeted from 34,700 won on Nov. 8 to 17,710 won in four trading days. During this period, some executives reportedly sold some of their shares and earned substantial profits before the stock price collapsed.
The FSS also suspects NH Investment & Securities of colluding with Fadu to manipulate the IPO price. “Fadu and NH Investment & Securities have severely undermined market trust and eroded investor trust,” said an FSS official.
