By Kim Rahn
Staff Reporter
The nation's first class action suit filed by a group of minor shareholders is unfolding as a local court acknowledged a private equity fund as a representative party.
Suwon District Court selected Seoul Invest Wednesday as the representative of plaintiffs of the class action filed against Jinsung T.E.C., a KOSDAQ-listed construction machinery part maker, for losses allegedly caused by accounting fraud.
The suit will be launched in the middle of next month when the court gives the final go-ahead ― if more than 50 shareholders are confirmed to take part in the action. In Korea, a stock-related class action can be started only after a court approves it in order to prevent abuse of the system.
Most of about 1,500 stockholders are likely to participate in the suit. Experts say the court's designation of a representative means Korea's first stock-related class action suit is about to take place. The law on class suits took effect in January 2005, but no suit was filed until this April with Seoul Invest.
According to Seoul Invest, Jinsung posted a corrective public notice on Dec. 18 last year to say it had 17.5 billion won of losses as of Sept. 30. Previously, it said on Nov. 14 that it had 5.1 billion won in operating profits. ``The earlier public notice was false. It covered up the loss and committed accounting fraud,'' Seoul Invest said in a letter which it sent to other shareholders in March.
Seoul Invest claimed that the company's incorrect public notice devastated Jinsung stock prices, causing a total of 40 billion won in losses to shareholders. It holds a 2.5-percent stake in Jinsung.
Seoul Invest CEO Park Yoon-bae said, ``We will file suits or take other steps against companies that damage shareholders.''
On April 14, it filed a suit against Jinsung and two of its top executives, claiming they should pay 2 billion won in compensation. In February, the firm also filed a complaint with the prosecution against Jinsung and two of its executives for violating the Stock Exchange Law. It filed a petition with the Financial Supervisory Service and the investigation is ongoing.
Unlike ordinary suits, all shareholders who suffered damage will get compensation if the representative wins the case.