EcoPro Chairman Lee Dong-chae, left, speaks during a memorandum of understanding signing ceremony at Pohang City Hall in North Gyeongsang Province in this September 2021 file photo. Yonhap

By Park Jae-hyuk

EcoProBM confirmed the news that Lee Dong-chae, chairman of its parent firm EcoPro, and several executives of its affiliates are under investigation by prosecutors on suspicion of insider trading.

"We sincerely apologize to our shareholders for causing concern with this issue," the Kosdaq-listed battery materials firm posted on its website on Wednesday night. "We promise again that we will do our best to dispel worries about this issue, enhance shareholder value and pursue company development."

The announcement was made several hours after a local news outlet reported that high-level insiders of EcoProBM had purchased the company's shares in February 2020, before disclosing its agreement with SK Innovation to supply nickel-cobalt-manganese (NCM) cathode materials worth 2.7 trillion won ($2.2 billion) until the end of 2023.

According to the report, the Financial Services Commission and the Seoul Southern District Prosecutors' Office searched EcoProBM's offices last September, after detecting the suspicious transactions.

On the day EcoProBM disclosed its contract with SK Innovation, its stock price soared by 20.98 percent, and in nine days it had risen to 90,000 won from around 50,000 won.

EcoProBM declined to mention any further details about the insider trading allegation, only saying the investigation is underway. It also said the allegation will not cause any financial losses to the company, even if it turns out to be true.

"Compared to the amount of our outstanding shares, it was revealed that the size of their purchase was significantly small, so we expect the allegation to have a limited impact on our company," EcoProBM said.

Its stock price, however, dropped by 19.15 percent, Wednesday, after the news broke about the insider trading allegation. The stock prices of EcoPro also fell 27.64 percent and its affiliate EcoProHN dropped by 27.59 percent, although their stock prices bounced back the following day.

EcoProBM is already facing a darker outlook, after a fire broke out last Friday at its factory in Cheongju, North Chungcheong Province, killing one factory worker and injuring three others. The Cheongju factory with a capacity to produce 30,000 tons of cathode materials annually, has halted its operations since the fatal accident.

Securities analysts warned that a series of controversies over EcoProBM may deal a severe blow to Korea's entire electric vehicle battery supply chain, considering the growing importance of management prioritizing the environmental, social and corporate governance (ESG) principles.

As the largest Korean producer of cathode materials, EcoProBM has been supplying its products to Samsung SDI and SK on. In 2020, EcoProBM established a joint venture named EcoProEM with Samsung SDI and built a factory in Pohang, North Gyeongsang Province. The materials firm signed another contract last September with SK on's parent firm, SK Innovation, to supply high-nickel (Hi-Ni) cathode materials worth 10 trillion won from 2024 to 2026.

Given that EcoProBM has continued to increase its investments in Pohang, where the EcoPro chairman was born, the city's residents and businesspeople are also paying close attention to the controversy with concerns about its possible impact on the region's economy.