April 20, 2024

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[THE INVESTOR] South Korea’s financial authorities have launched a probe into reports that Hanmi Pharmaceutical leaked information on terminating its licensing partnership with Boehringer Ingelheim before making an official disclosure last week.

The Financial Service Commission said Friday that it has confiscated smartphones from Hanmi officials as part of the investigation. It would consider taking appropriate legal action if needed.

Hanmi Pharmaceutical CEO Lee Gwan-sun apologizes at an urgent press meeting held at the company`s headquarters in Seoul on Oct. 2.

The FSC’s capital market investigation unit is looking into possibilities that select individuals exchanged news of the broken licensing deal via mobile messenger KakaoTalk on the evening of Sept. 29 before Hanmi officially publicized the information on Sept. 30.

“We are carrying out an investigation based on the report received on Tuesday. We’ve confiscated the smartphone of a Hanmi executive (to trace potential evidence left on the device),” Director of the FSC’s capital market investigation unit Ryu Jae-hun told The Korea Herald.

“The results of the phone examination is expected to come out next week, after which we may be able get a clearer direction and grip on this case,” he said.

The FSC in partnership with the country’s main bourse operator Korea Exchange and the Financial Supervisory Service began investigating Hanmi this week after the company was accused of deliberately delaying the announcement of a major deal breakup to buy more time for some investors to withdraw Hanmi shares.

At 9:29 a.m. on Sept. 30, Hanmi disclosed that Boehringer Ingelheim terminated its licensing partnership over Hanmi’s new lung cancer drug Olmutinib. Following the news, the price of Hanmi shares plummeted 18.06 percent to close at 508,000 won that day.

The unfavorable announcement had come 29 minutes after the firm’s stock price spiked nearly 5 percent on a disclosure made after trading hours on Sept. 29 that Hanmi clinched a new licensing deal with Roche-owned Genentech valued at $910 million.

This particular sequence of events ignited suspicions that Hanmi intentionally timed its announcements to favor select shareholders. Other investors would have been encouraged to buy Hanmi shares at a higher price after the Genentech deal, without knowing that the price would plunge again following news of the termination of the Boehringer Ingelheim deal.

Moreover, a record high amount of offloading and short-selling took place on Sept. 30 — investors short-sold as many as 104,327 Hanmi Pharmaceutical shares — fueling further speculation that some stakeholders, particularly institutional investors, may have received an early notice of the unfavorable news.

Hanmi Pharmaceutical has officially refuted suspicions that it manipulated the timing of its disclosures, calling its moves “unintentional.”

The Korean drug maker said it was notified of Boehringer Ingelheim’s decision at 7:30 p.m. on Sept. 29. However, it did not immediately upload the information on the electronic disclosure system run by the FSS, which is processed by KRX officials on duty — the standard procedure for making disclosures during and after bourse hours.

“We thought the news might cause confusion in the market since we had announced the favorable Genentech deal at 4:30 p.m. that day,” said Hanmi Vice President Kim Jae-sik. “Considering the gravity of the issue, we thought we could not leave the matter to a KRX official on night duty,” Kim said.

Hanmi officials visited the KRX office at around 8:30 a.m. to make the announcement. “After a thorough review of the related contact and due approval procedures, the disclosure was made at 9:29 a.m. We apologize for the delay, but there was no other reasons,” Kim added.

The KRX has discredited Hanmi’s assertions, saying that the company can make immediate disclosures without receiving approval from the KRX.

“Though some companies listed as part of certain industries or hold problematic records require the KRX’s approval before making disclosures, Hanmi is not one of them,” said Chae Hyun-joo, Director of the KRX’s Kospi market division.

Amid mounting criticism over Hanmi’s stock price fluctuation and consequent damages to investors, the FSC vowed to amend rules on short-selling and corporate disclosures on Thursday.

In response to lawmakers during a parliamentary audit on the FSC, FSC Chairman Yim Jong-yong pledged to “take due measures to address current problems with the current short-selling and market disclosure system.”

While Yim acknowledged some lawmakers’ concerns that the practice of short-selling — a practice which only institutional investors can engage in — could hurt the interests of individual investors, he said such moves would fall out of line with the standards of the global financial markets.

During the audit, Rep. Park Yong-jin of the main opposition Minjoo Party also called the FSC to require listed firms to announce technology or licensing-related contracts immediately. As of now, companies can autonomously decide whether to announce such information.

By Sohn Ji-young/The Korea Herald (jys@heraldcorp.com)