Korea Zinc Chairman Choi Yun-beom speaks during a press conference at the Korea Chamber of Commerce and Industry in central Seoul, Nov. 13, 2024. Yonhap

Korea Zinc Chairman Choi Yun-beom and other management officials are expected to face criminal investigations on allegations of unfair trading.

According to industry sources, Wednesday, the Financial Supervisory Service (FSS) recently referred the case to the prosecution for violations of the Capital Market Act, based on suspected unfair trading by Korea Zinc's management and board of directors related to their decision in October last year to carry out a large-scale capital increase by issuing 2.5 trillion won ($1.7 billion) in new shares.

The financial watchdog pointed out that the zinc smelting firm had already been planning a capital increase before completing its share buyback through the tender offer, but failed to disclose this information properly.

The watchdog deemed this a case of false statements in the tender offer report and unfair trading.

Amid a dispute with an alliance of private equity firm MBK Partners and Young Poong over management rights, Korea Zinc's management conducted a tender offer for 2,331,302 treasury shares at 830,000 won per share between Oct. 4 and 23, as part of its defense strategy.

During the tender offer period, from Oct. 14 to 29, the company carried out due diligence on the capital increase through Mirae Asset Securities.

In the tender offer report, however, Korea Zinc stated that it had no plans that would alter its financial structure after the buyback. And later, it announced a capital increase at a 30 percent discount to the base price, causing its stock price to drop significantly.

In response to intense opposition, Korea Zinc withdrew its rights offering just two weeks after announcing it. However, the FSS continued its investigation, determining that the alleged false statements constituted unfair trading as defined under the Capital Market Act.

A visitor enters the lobby of Korea Zinc at its headquarters in downtown Seoul, Nov. 13, 2024, where the zinc smelter convened an emergency board meeting. Yonhap

The watchdog is also investigating whether Mirae Asset Securities and KB Securities, which served as the lead manager for Korea Zinc's share buyback and the underwriters for its rights offering, were aware of the situation during these processes and if they were involved in any unfair trading activities.

In connection with the issue, three Korea Zinc shareholders also filed a complaint with the prosecution against Choi and other management officials, claiming they suffered losses due to the sharp drop in the company's stock price following the announcement of the capital increase plan.

Kim Jun-tae, the attorney representing the plaintiffs as part of a public interest initiative, told Yonhap News Agency, "The fact that the rights offering was planned for the future is a critical piece of information, and failing to disclose this in advance constitutes fraudulent and unfair trading."

The MBK-Young Poong alliance and Choi's side are expected to engage in a fierce proxy battle at an extraordinary shareholders' meeting of Korea Zinc on Jan. 23.

At present, the alliance holds a 40.97 percent stake based on the total number of issued shares, while Choi and his allies are estimated to hold a 33-34 percent stake.

Meanwhile, the National Pension Service, which is believed to hold the casting vote, reduced its stake in Korea Zinc, selling 632,118 shares and lowering its ownership from 7.49 percent to 4.51 percent, according to an electronic disclosure.