The Korea Exchange (KRX) has warned LG Display and LG Energy Solution that they could be designated as companies in violation of disclosure requirements after the two firms waited eight months to disclose criminal complaints against a former president over alleged breach of trust.

The KRX announced on Oct. 16 that it had notified both companies of their potential designation for failing to meet disclosure obligations.

The companies filed criminal complaints on Feb. 10 against a former LG Energy Solution president surnamed Lee, alleging breach of trust in the course of business, but did not disclose the matter until Oct. 14. They revealed the complaints only after the exchange requested disclosures concerning allegations of embezzlement and breach of trust involving a former executive.

Lee is suspected of causing financial losses to the companies by arranging consulting payments to a Chinese firm linked to his family while serving as president. The alleged breach of trust disclosed by the two companies totals approximately 7.5 billion won.

"Allegations of embezzlement or breach of trust involving executives are subject to mandatory disclosure regardless of the amount involved," a KRX official said. "We generally consider the disclosure obligation to arise when a company files a criminal complaint or prosecutors bring charges."

The companies have until Oct. 27 to file objections. Based on their explanations, the exchange will review the circumstances surrounding the delayed disclosures, whether the delays were intentional and the seriousness of the matter before deciding whether to designate them as disclosure violators and impose penalty points.

Accumulating 10 or more penalty points could trigger a substantive review of listing eligibility. Neither company has accumulated any penalty points over the past year.

"The exchange reviews whether disclosure delays were intentional and how serious the violations were based on materials submitted by the companies," the official said. "Depending on the circumstances, disclosure violations can result in penalties ranging from two to 14 points."

"If a company receives eight or more points in a single case, trading in its shares is suspended for one day, and a disclosure violation designation is displayed next to its stock name for a specified period," the official added. "If a company's accumulated penalty points reach 10 or more within one year, it may become subject to a substantive listing eligibility review."