FSS probes Mirae Asset over failed SpaceX share allocation

Korea’s financial watchdog is investigating Mirae Asset Securities’ failed SpaceX share allocation, in which investors who subscribed to the offering ultimately received no shares.

Subscription initial public offering (IPO) orders were submitted through Mirae Asset Securities. 

The regulator may also scrutinize the firm's internal controls, given that its management actively promoted the offering before the allocation volume had been finalized.

The Financial Supervisory Service (FSS) is broadly reviewing investor protection issues related to the incident without specifying an end date for the inspection, according to financial authorities on Tuesday.

The FSS began an on-site review of Mirae Asset Securities on June 5 and converted it into a formal inspection on June 9.

Initially, the regulator's review focused on the process through which individual and corporate investors eligible to participate in the SpaceX offering were registered as professional investors. Under the Act on the Protection of Financial Consumers, professional investors are exempt from certain investor protection requirements, and the FSS sought to determine whether the associated risks had been adequately disclosed.

After the review was upgraded into a formal inspection, the share allocation fell through, which led authorities to expand their examination to include the circumstances behind the failed allocation.

Regulatory authorities view the fact that no allocation was received as highly unusual, even if the lead underwriter, Goldman Sachs, ultimately has discretion over how shares are distributed among participating underwriters.

Authorities are also paying close attention to the fact that Mirae Asset Securities began aggressively promoting the offering well before the final allocation was determined, despite a strong possibility that the number of shares assigned during the lead underwriter's allocation process could change significantly.

Mirae Asset Group Chairman Park Hyeon-joo said in an interview with a media outlet in April that he expected the firm to receive a substantial allocation of SpaceX shares and intended to provide as many investors as possible with an opportunity to participate.

Regulators may therefore review the actions of senior management and the firm's subsequent companywide subscription promotion campaign to determine whether there were shortcomings in its internal control system.

The incident has also renewed concerns about exaggerated or misleading advertising and excessive marketing practices across the financial industry.

Korea Investment Management's exchange-traded fund, ACE US Space Tech Active, had originally promoted plans to include SpaceX shares through Mirae Asset Securities' allocation. However, the fund ultimately acquired the stock through market purchases instead.

Disappointment that the expected returns would be lower than those anticipated from a public offering allocation sent the fund's shares down 10.81 percent from the previous session, closing sharply lower on Monday.

The FSS plans to discuss the issue as part of a task force launched in April to improve advertising regulations for financial investment companies and is expected to draw up reform measures in the third quarter.

BY KIM JI-HYE  [[email protected]]