The Financial Supervisory Commission (FSC) said yesterday it is mulling measures to crack down on “back-door listing” irregularities as a stock manipulation scandal surrounding Genome International Biomedical Co (基因國際) grows.
“Securities officials are reviewing back-door listing practices and may draw up an exit mechanism for companies with financial troubles or facing difficulty in trading shares,” commission Chairman William Tseng (曾銘宗) told lawmakers on the legislature’s Finance Committee.
Tseng was fielding questions over the probe into Genome, a Taipei-based medical equipment and healthcare services company, as well as the Top Pot Bakery chain (胖達人), which made headlines in August after it was found to be using artificial flavorings in what it claimed were “all-natural” products.
Genome was granted permission to trade its shares on the nation’s over-the-counter GRETAI Securities Market in December 2011 by acquiring an unprofitable chipmaker.
A back-door listing occurs when a privately held company not qualified for the public offering process purchases a publicly traded company and therefore gains automatic inclusion on a stock exchange. Such a listing usually indicates significant weakness in the acquired company and serves as a warning sign for investors to be wary.
The commission’s Securities and Futures Bureau (SFB) will meet later this month to address the issue, Tseng said.
Shares in Genome plunged by its daily limit for the second consecutive day yesterday to close at NT$74.3, bucking the TAIEX’s 1.73 percent gain, Taiwan Stock Exchange data showed, as sellers sought to dump shares, but could not find buyers.
Genome stock shed 42 percent for the past three months, while biotechnology players rallied 13.18 percent and the OTC index picked up 5.52 percent, according to the local bourse.
The company said in a stock filing it would cooperate with the investigation, which has no impact on its operations or financial standing.
Tseng said the delisting mechanism, once put into practice, would not have a back-dated effect on currently listed firms.
Securities officials would draw up a list of back-door listing companies and step up inspections as they tend to have financial or management problems.
Currently, firms may volunteer to delist, or be forced to do so at the request of regulators.
Share prices should not serve as an important reference, but not the decisive factor, in judging whether to delist a company or not, Tseng said, asking investors to be extra cautious about shares with abnormal movements.
The Securities and Futures Bureau’s new director-general, Wu Yui-chun (吳裕群), said shares with poor circulation are prone to manipulations.
Stock manipulation allegations have dogged Genome as its share prices soared from NT$60 in August last year to NT$212 in six months’ time, following its high-profile investment in Top Pot Bakery.
It shares nosedived this fall to NT$60 after the outbreak of the artificial flavorings scandal two months ago. The bakery chain refunded NT$85.75 million (US$2.9 million) to angry customers.
Genome is estimated to book NT$27 million in losses, in line with its stakes in the bakery, thereby weakening its earnings per share by NT$1 this year, local media reports said.