Youngpoong Says Kyungyung Zinc’s Choi Yun-beom Pre-Investment in Akmedia Showed Signs of 'Preplanned Breach of Trust'

Youngpoong said that, in connection with allegations that Kyungyung Zinc in-house director Choi Yun-beom made a pre-investment in an unlisted entertainment company, it had identified in advance the route by which company funds were deployed and found signs of a 'breach of trust involving self-dealing' in which Choi and his close associates acquired stakes first. Youngpoong said it presented specific accounting records and materials as the basis for the claim.

According to Youngpoong, Choi invested in the unlisted drama production company Akmedia ahead of time, and 7 members of his inner circle, including acquaintances, participated in a third-party allotment capital increase over a 2-month period. Youngpoong said the 7 inner-circle members secured Akmedia stakes in advance through the process.

Youngpoong also claimed that KRW 25 billion in Kyungyung Zinc funds was injected. Based on materials it says it secured on its own, Youngpoong and MBK Partners explained that a large amount of Kyungyung Zinc money had been waiting in an One Asia Partners fund account in advance, and that the investment was carried out in a way that deployed prepared company funds after Choi personally and key close associates secured pre-investment stakes.

Youngpoong presented the process as a flow in which the acquisition of pre-investment stakes and the execution of company funds were linked. It also said that 1 of the 7 inner-circle members was appointed the following year as an outside director and audit committee member of Kyungyung Zinc.

According to Youngpoong and MBK Partners, multiple transactions were intertwined over about 2 months from May 2020. Youngpoong and MBK Partners cited Kyungyung Zinc’s investment in One Asia Partners’ fund as the starting point of that sequence. On May 12, 2020, Kyungyung Zinc contributed about KRW 23.659 billion to One Asia Partners’ blind fund, 'Korea Growth No. 1,' for the purpose of investing in Akmedia, a newly established company founded on May 12, 2020.

At the time Kyungyung Zinc made the contribution, Akmedia had been established only 20 days earlier. The about KRW 23.659 billion represented 94.64% of Kyungyung Zinc’s contribution in the fund’s requested Akmedia investment amount of KRW 25 billion. Notably, according to Youngpoong and MBK Partners, the funds were not immediately deployed and instead remained in the fund account.

Youngpoong and MBK Partners said that on May 29, 2020, 17 days after the company funds were deposited into the fund, Director Choi Yun-beom personally purchased KRW 1.7 billion worth of Akmedia’s first convertible bonds, or CB, under his own name. At the time of the purchase, Akmedia was 1 month old.

On June 5, Akmedia carried out a third-party allotment capital increase. In the process, key close associates, including acquaintances of Choi, were allocated new shares at KRW 5,000 per share, and a total of 7 people secured all of Akmedia’s equity. On the same day, Ji Chang-bae, CEO of One Asia Partners, took office as an in-house director of Akmedia.

After Choi and his associates completed the work of securing stakes, the stalled movement of company funds began. On July 10, Kyungyung Zinc funds that had been held in the fund account moved through Korea Growth No. 1 and into Akmedia’s second CB.

Youngpoong and MBK Partners said that, regarding this 59-day flow of funds, the IB and legal circles view it as a typical case of blocking the route and a preplanned breach-of-trust structure using undisclosed information. They also explained that, in general, capital call funds from GP to LP are transferred to the investment destination within no later than 3 to 4 days.

The speaker said that in this transaction Kyungyung Zinc contributed more than KRW 23.6 billion and that Kyungyung Zinc funds were deposited in the fund account for 59 days. The speaker added that during that period, Akmedia, the fund’s investment target, saw Director Choi’s CB subscription, the 7 associates’ participation in the third-party allotment capital increase, and CEO Ji Chang-bae’s appointment as a director proceed sequentially, almost like a scripted play.

The speaker went on to point out that while the possibility of an increase in corporate value was being discussed due to the injection of KRW 25 billion, including Kyungyung Zinc funds, Choi Yun-beom, then Kyungyung Zinc’s representative, personally secured equity in Akmedia even though it was a new drama production company with no track record and only 1 month since establishment, and key close associates also secured equity in the company. He argued that without prior knowledge of a rise in corporate value there was no reason for the sequential acquisition of stakes by Choi and his associates, and said the company’s public funds were used as leverage for private investment gains in an attempt to create massive capital gains opportunities for himself and his special-interest inner circle while neutralizing oversight, calling it a typical preferential breach-of-trust transaction and moral hazard.

Source: TECHWORLD · Lee Gwang-jae
Original: https://www.epnc.co.kr/news/articleView.html?idxno=408004

References

• https://www.epnc.co.kr/news/articleView.html?idxno=408004