Raid on memory manufacturer SK Hynix by South Korean regulatory authorities – investigations against scandal-plagued supplier FADU are intensifying

On April 30, 2024, South Korean officials from the country’s financial regulator raided SK hynix’s headquarters in Incheon. The move was part of an ongoing investigation into the allegedly bloated IPO of fabless SSD and controller company Fadu. SK hynix is ​​one of Fadu’s main customers.

Officials from South Korea’s Financial Supervisory Service (FSS) raided SK hynix’s office and accounting department. They secured data related to the company’s dealings with Fadu and detained unnamed employees for questioning. SK hynix confirmed that the employees in question were arrested as witnesses and were actively cooperating in the investigation.

Before going public in August 2023, Fadu told investors that its estimated annual revenue for 2023 would total 120 billion won (US$86.5 million). The company subsequently debuted on South Korea’s Kosdaq stock exchange with a selling price of 31,000 won (US$22.70) per share and a market capitalization of about 1.5 trillion won (US$1.1 billion).

Fadu failed to meet these expectations and the company’s share price more than halved in the months following its IPO. Both investors and regulators have questioned some of Fadu’s corporate listings for failing to disclose information that may have influenced the company’s stock prices.

Shareholders responded with a lawsuit against Fadu, the underwriters NH Investment and Securities and Korea Investment and Securities. This prompted the South Korean FSS to intervene and raid Fadu’s Korean offices in March, as well as those of NH Investment, Korea Investment and the Kosdaq exchange itself.

Next, the agency’s Special Criminal Investigation Department raided SK hynix’s headquarters. The FSS reportedly intends to compare SK hynix’s financial records with those of Fadu.

For its part, SK Hynix has positioned itself as one of the largest memory chip manufacturers in the world. Its high-bandwidth memory modules used in AI chipsets have already sold out for 2024 and are about to sell out for 2025. What impact, if any, the regulatory crackdown might have remains to be seen.