FADU investors lodge class action suit over alleged IPO price inflation

Shareholders of FADU, a fabless semiconductor company, have filed a class action lawsuit against both the company and its IPO underwriters, accusing them of inflating the stock price during its initial public offering (IPO) last July, according to a law firm representing retail investors, Friday.

This marks the first lawsuit related to an IPO since the Securities-related Class Action Act was enacted in 2005.

Litigation representative Hannuri Law said it filed the class action against FADU, NH Investment & Securities and Korea Investment & Securities. This legal action comes on behalf of investors who suffered financial losses from the IPO of FADU, which resulted in a sharp decline in its stock price.

Last July, FADU’s offering price was set at 31,000 won ($23.31). However, following the announcement of a disappointing third-quarter performance last November, its share price nearly halved. As a result, the market capitalization, which was around 1.5 trillion won at the time of listing, dropped below 800 billion won.

As of Friday, FADU’s share traded at the 19,000 won range. Since last November, the share price has never reached the offering level again.

This situation starkly contrasts with the optimistic projections made by FADU and its IPO underwriters, according to the plaintiffs.

In their securities registration statement and prospectus, they noted that the company’s sales were projected to “continue their rapid growth into 2023,” with “revenues expected to hit 120.3 billion won, marking a 113 percent increase compared to the prior year.” They also stated that, as of the date the statement was prepared, there had been “no significant developments affecting investor protection,” including changes in orders or financial performance.

Hannuri Law alleges that FADU and its underwriters offered “false information” in its IPO process, setting the offering price based on overestimated projections of sales and net profits.

“At the time of the disclosure, FADU was already facing substantial setbacks, including order cancellations from key clients, which resulted in second-quarter sales of just 59 million won and an operating loss of 15.3 billion won,” Hannuri Law said.

The claim is set at 100 million won, including delayed damages. Hannuri Law aims to adjust this figure to reflect the collective losses once all affected investors are identified. The class is defined as those who purchased FADU’s shares during the IPO and suffered losses either by selling their shares after the company’s underperformance was disclosed on Nov. 8, 2023, or by still holding onto their shares.

According to the Securities-related Class Action Act, the verdict in the lawsuit led by the representative plaintiffs will also affect victims who have not joined the lawsuit.