Coupang continues controversy over local disclosures in the U.S.... Investigation cooperation ‘subject’ changed [only Edaily]

In the revised disclosure statement, the investigative cooperation subject ‘Coupang’ → ‘culprit’
Information leaks were also registered as 3,000 cases as a result of our own investigation.
On the day police pointed out 'information silliness', self was promoted to 'subject of investigation'
US lawyer: “Intentional frame change, possibility of ‘distortion of important facts’”
Coupang "Simple update stating that the culprit has been identified"

Coupang's announcement on the U.S. stock market, which caused a large-scale personal information leak, is being criticized every day.

Coupang reported in documents submitted on the 29th (local time), “Although 33 million customer accounts were accessed, the criminal only stored limited data on about 3,000 cases.” In particular, in the correction disclosure submitted to the US securities authorities, it was confirmed that the subject of investigation cooperation was changed from ‘the company’ to ‘the criminal.’ In a situation where the police are pointing out Coupang’s ‘passing by investigative agencies,’ some point out that putting forward the criminal as the subject of investigation cooperation is a strategy to avoid the company’s organizational responsibility in future legal battles. The U.S. local class action attorney raised the possibility of applying charges of ‘securities fraud’ for this change in disclosure.
 

Subject of cooperation, ‘Coupang’ → ‘culprit’

According to Edaily's coverage on the 31st, Coupang Inc, the parent company of Coupang listed on the U.S. stock market, stated in a correction disclosure (8-K/A) submitted to the U.S. Securities and Exchange Commission (SEC) on the 29th (local time) that "the 'perpetrator' is cooperating with Coupang and investigators." This is a significantly different expression compared to the expression in the announcement on the 16th (local time) that “‘Coupang’ is fully cooperating with regulatory authorities (Korean regulators have initiated investigations with which Coupang is fully cooperating).”

Lee Woong-hyeok, a professor of police department at Konkuk University, said, “This is a shift of emphasis from Coupang’s organizational problems to individual problems,” adding, “It can be interpreted as an intention to gain an advantage in future lawsuits by changing the reality of the incident from a structural defect of the company’s negligence in security management to a ‘third party’s personal deviation.’”

This change in wording was made after the police expressed strong regret over Coupang's own investigation. On the 29th (local time), more than half a day after the police officially pointed out Coupang's non-cooperation, Coupang presented a conflicting message through a correction notice, saying, "We are resolving the case by cooperating with investigators."

Previously, Park Jeong-bo, Commissioner of the Seoul Metropolitan Police Agency, said at a regular press conference on the morning of the 29th, “Coupang arbitrarily submitted the suspect’s laptop and never announced that it was conducting its own forensics,” and warned, “If Coupang submitted fabricated data, it will be held severely accountable.”

Regarding this, Professor Lee said, “It is as if Coupang, the subject of the investigation, has moved to a position where it stands side by side with the police and receives cooperation,” and pointed out, “It is highly likely that this will be interpreted as a strategy to shift the blame onto the criminal in order to avoid criticism from domestic public authorities.”

“Correction notice, a sensitive and powerful attack point”

Some in the legal community pointed out that there was a high possibility that Coupang would be charged with ‘securities fraud’ for deceiving investors and victims due to its corrected disclosure. The reason why the subject of cooperation was changed to the culprit can be interpreted as a kind of change of perspective to cover up the fact that the company's cooperation was insufficient and to give the impression that the investigation was proceeding without a hitch. Dong-Hoo Son, a New York attorney at SJKP (Daeryun Law Firm, USA), who is leading the consumer class action lawsuit for the Coupang personal information leak case in the United States, pointed out that this disclosure change is “a very sensitive and powerful point of attack.”

Attorney Son said, “The reason for changing the subject of cooperation to the culprit is to rule out the possibility of the company’s lack of cooperation and to maintain the impression to investors that the investigation is smooth,” adding, “This is a point that can be fully contested as ‘distortion of material facts’ or ‘misleading omission’ under U.S. securities law.”

‘Misstatements of material facts’ and ‘misleading omissions’ are typical fraudulent practices prohibited by Rule 10(b) of the Securities Exchange Act and SEC Rule 10b-5. This refers to the act of falsely telling investors important information or intentionally omitting unfavorable background information to cause investors to make wrong decisions. Violations can result in significant fines from the SEC and serve as the basis for punitive damages in civil class action lawsuits.

During this revised disclosure process, there is also the possibility of violating ‘Selective Disclosure (Regulation FD)’. Coupang's stock price rose by about 6% after preemptively disclosing information about the ‘reduction in the size of the leak’ through a domestic press release on the 25th. However, the SEC disclosure did not reflect this information until the 29th, the second business day.

Attorney Son said, “If the official press release distributed overseas by a U.S. listed company actually served as an important signal to the market, the SEC may evaluate it as actual selective disclosure.” He added, “The fact that the relevant information was belatedly included as a corrected disclosure is the starting point for the argument of ‘failure to disclose at the same time’ violation of selective disclosure.” He added, “The differences in disclosure content, timing, and expression method are circumstantial data that shows what kind of perception and judgment Coupang made at each point in time.” He added, “It will be used as a clue to dispute whether the management was ‘intentional deceiver (Scienter)’ in the future.”

Regarding this, Coupang explained, “The correction disclosure is not a correction to the existing premise that ‘there was cooperation with the government,’ but a disclosure to update the content that the ‘culprit’ has been identified.”

Seok Ji-heon (cake@edaily.co.kr)

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Controversy over Coupang's local disclosures in the U.S. continues... Investigation cooperation ‘subject’ changed [only Edaily] (shortcut)