15,000 retail investors burned as stock-manipulation ring inflated share price 900% with fake battery deals

Prosecutors indict two ringleaders in custody, three accomplices without detention; false disclosures pushed shares from the 2,000-won range to nearly 29,500 won

A string of false positive disclosures sent RF Semi's share price soaring roughly 900%, from the low 2,000-won range to a peak of 29,450 won. When the fabricated rights offering and battery supply plans were exposed, the stock collapsed back to the 2,000-won range. [Image generated with ChatGPT]

A group accused of repeatedly issuing false disclosures to make it appear that a multitrillion-won secondary battery business was underway — driving the company's share price up nearly ninefold — has been indicted.

Zero-capital M&A: management stake acquired at no cost

The Seoul Southern District Prosecutors' Office's Joint Financial and Securities Crime Investigation Unit, led by chief prosecutor Shin Dong-hwan, announced Wednesday that it had indicted in custody the former and current chief executives of Kosdaq-listed RF Semi — identified as A and B — on charges including violations of the Capital Markets Act and breach of fiduciary duty. Three accomplices were also indicted without detention.

According to prosecutors, A is a financier who previously served as a deputy assistant minister-level economic official. B had fled to China after becoming embroiled in a stock-manipulation case involving a "China battery" theme eight years ago. Together with accomplice C — who had served prison time for prior stock-manipulation offenses — they approached the cash-strapped RF Semi and proposed taking over management. They promised to raise 20 billion won ($14.5 million) from a prominent Chinese conglomerate and secure an additional 60 billion won ($43.5 million) through a rights offering and convertible bond issuance to pursue a large-scale secondary battery business.

The zero-capital M&A transaction structure used by the stock-manipulation ring [Provided by Seoul Southern District Prosecutors' Office]

In practice, the group had no acquisition funds of its own, prosecutors found. They pursued what is known as a "zero-capital M&A" — cobbling together the purchase price largely from 10 billion won ($7.3 million) borrowed from a Gangnam loan shark. In the process, they secretly withdrew 10 billion won in company funds to provide as collateral to the lender and arranged for the company to stand as a joint guarantor on the debt.

Prosecutors also found that A and B had planned in advance to siphon company funds to repay the high-interest loans, which carried an annual rate exceeding 260 percent. Under the pretext of securing exclusive rights to receive secondary battery supplies from a Chinese company, they funneled 14.3 billion won ($10.4 million) out of the company. They then used the proceeds to repay 10.65 billion won ($7.7 million) in loan principal and interest, settle personal debts and pay advisory fees.

The business rights in question were never exercised and were written off entirely the following year. Prosecutors said B effectively acquired 4.7 million management-stake shares — worth approximately 110 billion won ($79.7 million) at the time — at no cost through this scheme.

Repeated false disclosures, then a crash and delisting

Once in control of the company, the group moved immediately to inflate the share price. They promoted the false claim that RF Semi would exclusively distribute secondary batteries produced at a Chinese factory — between 50 million and 100 million units per year for 10 years — to markets worldwide. The group also issued misleading or exaggerated disclosures portraying an annual business worth 3 trillion to 6 trillion won ($2.2 billion to $4.3 billion).

The Chinese factory in question had already halted operations at the time due to excessive debt and unpaid wages, and subsequently went bankrupt, investigators found.

The group also repeatedly disclosed that a Chinese businessman would participate in a 10-billion-won ($7.3 million) rights offering and that a 60-billion-won ($43.5 million) convertible bond issuance was imminent. Investigators determined that the 10 billion won was in fact short-term borrowing from a loan shark, and the convertible bond plan was entirely fabricated.

Each time the convertible bond issuance was delayed, the group issued additional disclosures claiming large-scale supply contracts had been signed with overseas firms in Singapore, the Philippines and Myanmar — luring in more investors, according to the investigation.

RF Semi's share price movements during the period of the alleged crimes [Provided by Seoul Southern District Prosecutors' Office]

Driven by the stream of false positive news, RF Semi's share price surged roughly 900% from the low 2,000-won range to a peak of 29,450 won. When the rights offering and battery supply plans were exposed as fabrications, the stock collapsed back to the 2,000-won range. RF Semi was subsequently suspended from trading and ultimately handed a delisting decision; related injunction proceedings are ongoing.

Prosecutors estimate that approximately 15,000 retail investors suffered losses. The defendants, by contrast, are believed to have reaped about 13.8 billion won ($10 million) in illicit gains from share trading and to have secured management-stake shares worth hundreds of billions of won at effectively no cost.

"Fraudulent unfair trading that exploits false disclosures and fabricated positive news is a serious crime that undermines confidence in the capital markets and inflicts serious harm on investors," a prosecutor said. "We intend to pursue the full recovery of criminal proceeds."

newday@heraldcorp.com