A group of investors in FADU, a fabless semiconductor company, has filed a class action lawsuit against the firm and its IPO underwriters, accusing them of artificially inflating the stock price during the company’s initial public offering (IPO) in July 2023. This marks a significant development as it is the first lawsuit related to an IPO under the Securities-related Class Action Act, which was enacted in 2005.

The legal action, initiated by Hannuri Law, targets FADU alongside NH Investment & Securities and Korea Investment & Securities, the banks responsible for underwriting the IPO. The investors assert they incurred considerable financial losses as a result of misleading claims made about FADU’s financial health during the IPO process.

FADU’s shares were initially priced at 31,000 won (approximately $23.31) during the IPO. However, following the release of disappointing third-quarter results in November, the stock price plummeted, losing nearly half its value. The market capitalization dropped from around 1.5 trillion won at launch to below 800 billion won. Currently, the stock trades in the range of 19,000 won, failing to recover to its original offering price.

The lawsuit contends that FADU and its underwriters issued overly optimistic forecasts in their securities registration statement and prospectus. They predicted substantial revenue growth into 2023, estimating that sales would reach 120.3 billion won—a 113 percent increase compared to the prior year. Additionally, the documents claimed that there were “no significant developments affecting investor protection,” despite ongoing issues within the company.

Hannuri Law contends that the defendants provided misleading information during the IPO process, setting the offering price based on inflated projections that did not reflect the company’s actual challenges. The law firm alleges that, at the time of the IPO, FADU was already experiencing significant setbacks, including canceled orders from major clients. This led to second-quarter revenues of only 59 million won and an operating loss of 15.3 billion won.

The claim put forth by the plaintiffs is set at 100 million won, with plans to adjust this figure as more affected investors are identified. The class comprises anyone who purchased shares during the IPO and either sold their shares after the company’s disappointing performance announcement on 8 November 2023 or retained their shares despite the decline in value.

The Securities-related Class Action Act stipulates that the outcome of this lawsuit will also impact those investors who have not opted to join the class action.