Hanryu Holdings

Kurta Law is investigating recommendations of Hanryu Holdings (HRYU) stock for their potential unsuitability for investors. The company discloses substantial risks in its stock prospectus, and it may have been inappropriate for some investors’ risk profiles. Brokers have an obligation to recommend investments that suit investors’ profiles under FINRA Rule 2111 and Regulation Best Interest.

Investors who have suffered losses due to broker fraud or misconduct may be able to recover financially through FINRA arbitration. Contact a securities attorney to review your case today: (877) 600-0098 or info@kurtalawfirm.com.

What is Hanryu Holdings?

According to its prospectus, Hanryu Holdings, Inc. (HRYU) develops FANTOO, a social media platform, through its subsidiaries. The platform is oriented toward fans of South Korean culture (K-culture), a movement known as Hanryu. The platform consists of spaces for public discussion, private direct messaging chats, private groups called “Clubs,” and a shopping platform for purchasing Kpop merchandise and other K-culture fandom products.

The prospectus states that FANTOO seeks to monetize fan communities by rewarding users with FANTOO Points (FP), which they can use to pay other users for their fandom-related goods and services. Users earn points through their usage of the platform and also receive FP as a percentage of the platform’s net advertising profits in the form of points depending on their activity levels.

In the company’s prospectus, it notes that, because “there has been no advertising revenue generated from the FANTOO platform, no FP has been issued as of the date of the prospectus.”

What are the Risks Associated with Hanryu Holdings?

Social media companies often incur significant losses in their early years, and profitability is not guaranteed. Hanryu Holdings cautions in its prospectus that its “historical growth rate may not be indicative of [its] future performance” and that rapid growth may not be financially sustainable in the long run.

The company also discloses that it has experienced millions of dollars in net losses in previous years, and an accumulated deficit of approximately $32.7 million as of March 31, 2023.

Lack of Liquidity, Price Fluctuations, and Penny Stock Status

As of the writing of the prospectus, Hanryu Holdings’ stock had no trading market. The company stated that “investors should assume that they may not be able to liquidate their investment for some time or be able to pledge their shares as collateral.”

Investors may also see fluctuations in the value of their shares. The company describes its stock price as potentially “volatile,” leading to the partial or total loss of stockholders’ initial investment.

The prospectus also warns that Hanryu Holdings may become a penny stock—a term for stocks that trade for less than $5.00 per share. Broker-dealers must provide special risk disclosures, designed to curb fraud, to potential investors in penny stocks.

Risks Unique to Social Media

Social media platforms are subject to unique risks, including:

• Developing new features and technologies to compete with other platforms in a fast-paced market
• Defending against cyberattacks and protecting user information
• System failures and denial-of-service attacks that can slow down services or make them entirely unavailable

Notably, Hanryu Holdings may suffer damage to its reputation as well as its finances if it fails to maintain its services and protect user information.

U.S. and Korean Government Regulations

As a South Korean company listing on U.S. securities exchanges, Hanryu Holdings is subject to securities regulations by both nations. It must keep up with changing regulations concerning cybersecurity, user privacy, and international e-commerce, as well as anti-corruption and anti-money laundering laws.

Failure to comply with regulations in either country could have financial and legal consequences for the company.

Potential Delisting from Nasdaq

On February 5, 2024, the Nasdaq Listing Qualifications Department sent Hanryu Holdings a letter informing them that the company’s common stock had failed to close at a price higher than at least $1.00 per share for 30 consecutive days, putting it at risk for being delisted from the exchange.

Nasdaq provides companies with 180 days to return to compliance with the Minimum Bid Price Requirement by achieving a $1.00 closing bid for at least 10 consecutive days.

Aegis Capital Corp. Underwriting  

Investors should know that Aegis Capital Corp. served as the underwriter for this offering. Underwriters take on risk in exchange for a fee, which could motivate certain investment banks to underwrite investments that pose too much risk for the average retail investor. Additionally, brokers may have conflicts of interest when they recommend shares that are underwritten by an affiliate of their brokerage firm. 

Do You Have Concerns About Your Shares of Hanryu Holdings?

If you have concerns about your investment in Hanryu Holdings, reach out to a Kurta Law securities attorney today. Kurta Law attorneys regularly handle cases of broker misconduct and unsuitable investment recommendations. Call (877) 600-0098 or email info@kurtalawfirm.com for a free consultation.