Photo = FSS

[Alpha Biz= Reporter Kim Jisun] Fadu, a South Korean semiconductor design firm embroiled in controversy over its allegedly inflated IPO valuation last year, and officials from its underwriter, NH Investment & Securities, have been referred to prosecutors.

The Financial Supervisory Service (FSS) announced on Sunday that it had submitted its investigation findings to prosecutors, recommending charges of violating the Capital Markets Act against Fadu and NH Investment officials involved in the IPO.

Fadu went public on the KOSDAQ market in August 2023 through a technology-specialized listing program. In its securities filing submitted a month before the IPO, Fadu estimated annual revenue of KRW 120.3 billion (approximately USD 91 million). However, its actual performance fell far short: second-quarter revenue amounted to KRW 59 million, and third-quarter revenue was just KRW 320 million. Following the disclosure of these dismal earnings, Fadu's stock price plummeted 45% over three days and has yet to recover to pre-earnings levels.

According to the FSS, Fadu’s management allegedly concealed anticipated revenue declines stemming from reduced and canceled orders from key clients starting in late 2022. Despite foreseeing these challenges, the company raised pre-IPO funding in February 2023 and reportedly secured investments under misleading pretenses.

Adding to the scandal, Fadu executives are accused of selling some of their shares during this period to realize personal gains. Furthermore, during the IPO review and prospectus filing process between March and June 2023, the company is alleged to have excluded critical information about the halted client orders and their anticipated impact on future revenue while presenting an overly optimistic revenue projection.

The case highlights significant concerns about transparency and investor protection in South Korea’s IPO market, particularly under the technology-specialized listing framework. If prosecuted, this could lead to broader regulatory scrutiny of IPO practices and greater accountability for underwriters and issuing companies.

 

 

 

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