[E-Daily Reporter NA EUN-KYUNG ] Attention is focusing on the scope of the case as executives and employees of ABL Bio Inc.(298380)(ABL Bio) are undergoing a compulsory investigation on suspicion of purchasing shares after gaining prior knowledge of a technology transfer agreement with a global pharmaceutical company. Depending on the investigation results, the matter could be dismissed as the personal misconduct of a few employees; however, if it expands into organized insider trading involving registered officers and the person responsible for disclosure, it could lead to a management vacuum and damage the trust of partner companies.

According to the pharmaceutical and biotech industry on the 15th, the Joint Task Force to Eradicate Stock Price Manipulation—composed of the Financial Services Commission, the Financial Supervisory Service, and the Korea Exchange—conducted raids that day on ABL Bio’s headquarters in Gangnam-gu, Seoul, as well as the residences of relevant employees. The task force suspects that approximately 10 individuals, including employees, purchased the company’s stock before the technology transfer was disclosed and sold it after the disclosure, reaping approximately 1 billion won in illicit gains.

This raid is interpreted to mean that the authorities, having identified a significant number of suspect accounts through an analysis of trading data before and after the disclosure, have launched a compulsory investigation to verify the channels through which the information was obtained and transmitted. However, the raid does not constitute a confirmation of the allegations; whether a link between inside information and stock trading can be confirmed in the seized messaging apps and emails will likely determine future sanctions and criminal penalties.

The stock

remained quiet just before the disclosure… but surged 70% in two days after the disclosure

. The specific contract that is the subject of the investigation has not been disclosed. However, two technology transfer agreements signed by ABL Bio Inc. last year are raising suspicions in the market. On April 7 of last year, ABL Bio announced a technology transfer agreement with GSK Holdings for its GrabBody-B technology, valued at up to 4.1104 trillion won, and on November 12 of the same year, it announced a technology transfer and joint research agreement with Eli Lilly valued at up to $2.562 billion—approximately 3.75 trillion won at the time.

At the time of the GSK technology transfer announcement, the stock price—which had been 34,050 won on the trading day immediately prior to the announcement (April 4)—closed at the daily upper price limit (44,250 won) on the day of the announcement, and subsequently rose to 56,800 won on the 10th, marking a 66.8% increase from the level just before the announcement.

In November of last year, when the technology transfer agreement with Eli Lilly was announced, the stock price rose from 96,700 won (on November 11) to hit the daily price limit for two consecutive days—the day of the announcement and the following day. The intraday increase compared to the closing price immediately prior to the announcement was 70.3%.

In neither of these two cases did the broader market exhibit a distinct pre-announcement surge. However, since the use of insider information can occur covertly in only a few accounts, it is difficult to determine the presence or absence of wrongdoing based solely on overall stock price trends. The Joint Investigation Task Force is expected to verify when and to what extent the accounts of executives and employees who had access to the technology transfer negotiations and the disclosure process were active.

Previously, the pharmaceutical and biotech industry experienced a leak of information regarding a technology export deal involving HanmiPharm(128940). In 2016, information about the termination of the technology export contract between HanmiPharm and Boehringer Ingelheim spread to employees and their acquaintances prior to the official announcement; an investigation revealed that 45 individuals gained improper profits or avoided losses totaling 3.3 billion won. Prosecutors indicted 17 of these individuals, and fines were also imposed on those who received the information from secondary or subsequent sources. However, no evidence was found of intentional delays in public disclosure by management or collusion with short-sellers.

Whether registered officers are included is the first key issue… If they were involved in both contracts, the repercussions could widen

The first issue to be clarified in the ongoing investigation is whether registered officers, including CEO Lee Sang-hoon, were among those under investigation. If ordinary employees merely used information they happened to obtain for personal gain, the impact on the company and its business could be limited. On the other hand, if the CEO or registered officers in charge of technology transfer, legal affairs, investor relations (IR), or disclosure were involved, issues regarding management liability and inadequate internal controls could come to light.

The second issue is how many contracts are under investigation. If the investigation is limited to a single contract, it is possible that this was a one-time offense by a few employees; however, if transactions involving both contracts are discovered, it will be difficult to avoid suspicion that information was repeatedly shared with each technology transfer.

The timing of information acquisition is also crucial. The degree to which the allegations can be proven varies depending on whether the investment was made based on vague possibilities early in technology transfer negotiations or after the likelihood of a public disclosure became concrete—such as following an agreement on key terms or the drafting of a final contract. Whether accounts in the names of spouses, family members, or acquaintances were used, in addition to the individual’s own account, and whether multiple accounts sold shares simultaneously immediately after the public disclosure are also expected to be key focuses of the investigation.

It must also be examined whether the company was aware of the employees’ and executives’ transactions and turned a blind eye, as well as whether it intervened in the timing of the public disclosure. If evidence is found that the company delayed the disclosure to give employees and executives time to buy shares or provided false explanations to the stock exchange, the case could escalate from individual insider trading to corporate-level misconduct.

A search and seizure at the headquarters alone is not sufficient to conclusively determine that ABL Bio itself is a suspect. The search may have been conducted solely to secure evidence to verify the employees’ sources of information. Ultimately, the nature of the case is expected to be determined by the job titles of the relevant executives and employees, the contracts in question, the scope of information dissemination, the company’s awareness of the matter, and whether it intervened in the disclosure process.

At a minimum, the matter could be resolved with criminal penalties and dismissals for some employees, along with strengthened internal controls. However, if it is confirmed that key registered officers systematically leaked information or that the company manipulated the timing of disclosures, this could lead to a management shakeup, shareholder derivative suits, and compliance investigations by partner companies. Nor does the mere involvement of a registered officer automatically result in a trading suspension or delisting.

On the day the news of the raid broke, ABL Bio Inc.’s stock price fell to 57,700 won—9.6% lower than the previous day’s closing price of 63,800 won.

Regarding this investigation, an ABL Bio Inc. official stated, “We are currently verifying the specific facts of the matter, and no plans have yet been made regarding a statement from the company.”