Shares of the South Korean firms fell on Thursday on worries the probe could lead to fines and more recalls, while industry data showing a sharp drop in China's passenger car retail sales in the first half of November spooked investors further.
Hyundai and Kia, together the world's No.5 automaker, recalled nearly 1.7 million vehicles in 2015 and 2017 in the United States in one of their biggest recalls in the country, citing an engine failure that increases the risk of a crash.
The U.S. Attorney's Office for the Southern District of New York (SDNY), part of the U.S. Department of Justice (DoJ), has launched a criminal investigation, the person with direct knowledge of the matter told Reuters.
It remains to be seen whether the probe will lead to charges, the person added. If criminal charges are filed, it could lead to hefty fines for the automakers.
The DoJ is coordinating with the U.S. transport regulator, National Highway Traffic Safety Administration (NHTSA), on the investigation, the person said, asking not to be identified as the matter is confidential.
Nicole Navas Oxman, a DoJ spokeswoman, declined to comment.
"The Justice Department generally does not confirm, deny or otherwise comment on the existence or non-existence of an investigation," she said in an emailed statement to Reuters.