Endotech probe over tip-off claim

Natural Endotech, a biotech firm whose shares crashed earlier this year after accusation of using a banned ingredient, is again embroiled in an allegation that the company’s CEO tipped off an investor to sell off his shares a day before the government’s revelation on the illegal act.

The news of the probe into the company put downward pressure on its shares, falling 2.08 percent at 23,550 won ($19.7).

On April 22, the Korea Consumer Agency confirmed the firm’s illegal use of herb called “Cynanchum wilfordii” in its products. After the announcement, shares of Natural Endotech plummeted from its peak on April 16, about 92,000 won, to about 8,550 won on May 18.

In June, CEO Kim Jae-su was acquitted of charges relating to the use of a banned ingredient. The prosecution said they had found no proof the banned ingredient was put into products intentionally and only 3 percent of products contained the ingredient. After he was acquitted, the stock price rebounded above 20,000 won.

Kim was called in for questioning by the Financial Supervisory Service on Thursday over the alleged shares tip-off.

FSS officials said an investor sold off 2 billion won of his shares in the company just a day before the consumer protection agency made an announcement in April that some ingredients of the banned herb were found in its products.

The investor was tipped off about classified information on the agency’s inspection of the company from CEO Kim Jae-su, according to the FSS.

“The investor held about 60,000 shares in Natural Endotech and sold off all of them,” a FSS official said by phone. “He was a close confidant of Kim and Kim frequently sought his advice.”

After the agency collected samples of the products at the firm’s factory in March, Kim allegedly notified the investor, the FSS officials said.

Kim also leaked information to another investor, but he did not sell off his shares. However, that investor spread the information to about three other investors, who sold off their shares, hedging losses worth nearly 1 billion won in total.

But the investors will not be penalized as they were not tipped off directly by the CEO.

Several executives at the company also sold off their shares, but they will not be punished either as the selling spree came after the agency collected samples.

The FSS officials involved in the investigation have forwarded their findings to the Seoul Southern Prosecutors’ Office. Kim was called in for questioning on Thursday.

“The Capital Markets Act, revised this July, punishes those who indirectly collected [information] that could lead a loss by other investors,” said the FSS official. “But the law was enacted in July and their action came earlier, so there’s no legal way to punish the investors who sold off shares through indirectly collected [information].”

BY KIM HEE-JIN [kim.heejin@joongang.co.kr]