A former CEO of the KOSDAQ-listed companies Jokwang I.L.I. and DAEYU, which received a delisting decision from the Korea Exchange, saw a significant reduction in the amount of embezzlement charges against him. Some speculate that as the amount of embezzlement charges has dropped below the regulations, there may be a possibility of resuming transactions. However, the Korea Exchange clarified that the reduction in the amount of embezzlement charges does not provide grounds to change the delisting decision.
According to the Korea Exchange on the 10th, due to a change in the indictment on the 4th, the embezzlement charge amount for Jokwang I.L.I. decreased from 1.71529 billion won (1.72% of equity) to 136.13 million won (0.14%), and for DAEYU it decreased from 2.06461 billion won (1.94%) to 163.77 million won (0.15%). Jokwang I.L.I. is the largest shareholder, holding 27.33% equity in DAEYU.
Previously, in April 2023, the embezzlement incident involving former CEO Kim led to Jokwang I.L.I. and DAEYU being subject to a substantive examination for listing qualifications, resulting in the suspension of their stocks. In August of the same year, the exchange voted to delist both companies. Following this, Jokwang I.L.I. and DAEYU filed complaints and were granted a grace period, delaying the final decision, but this year the exchange reaffirmed its decision to delist. Currently, both companies have filed a lawsuit for the suspension of the delisting decision at the exchange.
The companies argue that they could not have been subject to a substantive examination for listing qualifications due to the change in the indictment that was made, and thus, the delisting decision is unfair. According to current regulations, the criteria for initiating a substantive review for executives is when the scale of embezzlement or breach of trust exceeds 3% of equity or 1 billion won. The changed indictment indicates that former CEO Kim's embezzlement charges do not meet the criteria for initiating a substantive review.
However, the exchange views the occurrence of embezzlement and breach of trust as merely a cause for examining the company as a whole. This means that after the embezzlement charges arose, the exchange concluded that both companies' management transparency and business soundness were assessed before deciding on delisting. An official from the exchange noted, "Even if the amount of charges decreases retrospectively or a not guilty verdict is rendered by the court, the contents reviewed by the exchange regarding delisting remain valid," adding that "there is no impact from the already issued exchange decision."
A similar case is that of CNK International, which was delisted earlier. The representative of CNK International was indicted in 2014 for embezzlement charges amounting to 11 billion won, and the exchange decided to delist CNK International in March 2015.
At that time, CNK International claimed that "the regulations allowing the mere existence of embezzlement or breach of trust charges prior to a final ruling to be considered for a substantive examination of listing qualifications are invalid." In response, the Supreme Court in 2019 ruled that "when the embezzlement or breach of trust charges exceed a certain scale and are verified through public disclosures, it is necessary to provide for the possibility of considering this as a basis for initiating a substantive examination, taking into account the company's continuity, management transparency, and the soundness of the KOSDAQ market."
Moreover, Jokwang I.L.I. and DAEYU have failed to demonstrate the transparency of their governance structures, which the exchange is focusing on. Jokwang I.L.I. disclosed that the largest shareholder has changed from former CEO Kim to "J.S. Innovation Partners - Alpenroot New Technology Investment Partnership No. 1" at the end of last year. However, the major shareholders of this partnership, Paratech (22%) and JK Weathers (12.2%), are affiliated with Hyulim Robot, which is related to former CEO Kim. The exchange reportedly raised questions about the effectiveness of this improvement.
An official from the exchange stated, "The decision was made after comprehensively assessing the compliance status following the allocation of the grace period, so it is difficult to mention the possibility of resuming transactions simply because the amount of embezzlement has decreased," adding, "We will wait for the court's judgment."
If the lawsuit filed by the two companies for the suspension of the delisting decision is upheld, a substantive lawsuit to confirm the invalidity of the delisting decision will also proceed. Conversely, if the injunction lawsuit is dismissed, preparations for a cleanup sale for the delisting will commence. The substantive lawsuit itself is possible, but in this case, the likelihood of winning is not high.