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Highlights
- Regal Funds Management accused of violating South Korean short-selling laws.
- The hedge fund faces scrutiny amid ongoing investigations into global investment practices.
- Regal denies the allegations and awaits further legal proceedings.
Regal Funds Management (ASX:RPL), one of Australia's prominent hedge funds, has been indicted by South Korean prosecutors following an investigation into alleged breaches of the country's short-selling laws. The case involves accusations that Regal violated regulations back in 2019, prompting months of inquiry by South Korean securities regulators.
The charges come after the company recently appealed a 313 million won ($340,000) fine imposed by South Korea's financial authorities earlier in the year. The exact details of the breaches remain unclear, but they are tied to the company’s trading activities in global equities during that period. Regal has publicly denied the allegations and stated that it is reviewing its legal options under South Korean law.
Founded by high-profile figure Phil King in 2004, Regal Funds Management has been a significant player in the hedge fund space and went public on the ASX in 2022. While the identity of the former employee involved remains unknown, Regal is focusing on understanding the potential financial implications of the indictment and plans to assess the materiality of any financial impact once the indictment is fully reviewed.
In 2019, Regal managed several long-short global equities funds, including the Regal Investment Fund (ASX:RF1), the Regal Tasman Market Neutral Fund, and the Regal Atlantic Absolute Return Fund. The South Korean government’s investigation into Regal stems from its broader efforts to control short-selling practices, which have been subject to increased scrutiny in the country over the past year.
South Korean authorities implemented a temporary ban on short-selling in November, with the ban extended until March. The aim has been to stabilize the country’s stock market, which has struggled amid economic headwinds. Alongside Regal, major international firms such as Credit Suisse and BNP Paribas have also been investigated for their short-selling practices.
Naked short-selling, a practice where shares are sold without first being borrowed, has been a particular focus for South Korean regulators, who are looking to curb the practice. Though legal short-selling requires shares to be borrowed ahead of the trade, naked short-selling circumvents this process and has been blamed for exacerbating market volatility.
This isn’t the first time Regal has found itself in regulatory crosshairs. In 2019, the Australian Securities and Investments Commission (ASIC) raided Regal's offices in connection with trading activities, though no charges were filed. More notably, in 2015, Regal and its founder King were involved in another short-selling case involving Network Ten shares.
In recent years, Regal has undergone significant transformation, merging with VGI Partners in 2022 to form Regal Partners. This merger has expanded the company’s footprint, and it is currently pursuing additional acquisitions, including a potential bid for Platinum Asset Management (ASX:PTM).
Shares of Regal Partners closed down 2.31% at $3.80 following the announcement of the South Korean indictment, signaling market unease over the ongoing legal battle.
