Korea’s prosecution may seek an arrest for CJ Group Chairman Lee Jay-hyun on charges of tax evasion, stock manipulation and breach of trust

2013-05-24 18:26

CJ chairman may face arrest

The prosecution may seek an arrest for CJ Group Chairman Lee Jay-hyun on charges of tax evasion, stock manipulation and breach of trust, a senior prosecutor said Friday.
The Seoul Central District Prosecutors’ Office (SCDPO) wants to take the 53-year-old businessman into custody for questioning about his role in dodging tens of billions of won of income tax, manipulating stocks of CJ’s affiliates and damaging the group’s interest by helping his siblings, the prosecutor said. Investigators suspect Lee did not pay at least 10 billion won of income tax while trading stocks of affiliates, such as CJ Corp., CJ CheilJedang and CJ E&M, using “borrowed” names. CJ Corp. is the group’s holding company, while CJ CheilJedang and CJ E&M are its flagship food and entertainment firms. Lee is suspected of manipulating those stock prices using slush funds hidden in foreign banks based in Switzerland, Singapore and Hong Kong. As the funds are from foreign countries, they were taken to be foreign investors, which helped boost the stock prices of the companies. In Korea, foreign investors’ stock purchases are seen as a “buy signal” for local investors, and their trade patterns affect the market greatly. In terms of the breach of trust allegation, investigators are looking into why CJ Corp. bought CJ America’s financially-weak affiliate, which Lee’s sister Lee Mi-kyung owned, damaging the company’s value. Chairman Lee is the major shareholder of CJ Corp., the holding company of the group. Lee may face up to 11 years in prison if the allegations are true. According to the related laws, those who take more than 30 billion won in illegal gains from stock manipulation are subject to up to 11 years jail term. Charges of breach of trust and tax evasion vary from four to 11 years in prison according to the amount of money. Investigators have obtained credible evidence, including testimony from a former executive who handled the company’s finances, that Lee hid as much as 350 billion won in more than 300 different bank accounts in Hong Kong, according to prosecution sources. They suspect CJ also established special purpose companies in the British Virgin Islands, a well-known tax haven, to evade taxes and create slush funds. Prosecutors are also expanding their probe into allegations Lee transferred part of a secret fund worth 50 billion won to his two offspring, without paying gift taxes.2013-05-24 17:38

Probe targets CJ chief’s elder sister

Yun Suh-young

The prosecution put travel bans on three sibling CEOs of the CJ Group Wednesday to investigate CJ Group Chairman Lee Jae-hyun for alleged tax evasion and improper donations of company money to his relatives.

The Seoul Central District Prosecutors’ Office said Thursday it suspects Lee of allegedly transferring 50 million won to his children in cash without paying gift taxes as well as excessively giving favor to his siblings’ companies to help them expand their businesses.

His siblings who are also facing investigation are his older sister Lee Mi-kyung, vice chairwoman of CJ Entertainment & Media (CJ E&M), and his younger brother Lee Jae-hwan, CEO of JS Communications, an advertising company independent from CJ. Although JS Communications has no relation to CJ Group as it is 100 percent independently run by younger brother Lee, the company is still subject to scrutiny as most of their ads are shown in CJ-owned movie theaters.

Chairman Lee is accused of giving millions of company money as wages to his sister and taking over a subsidiary of CJ America run by her, resulting in financial damage to the group.

Lee’s older sister is an influential figure in the entertainment and movie industry. As vice chairwoman of CJ E&M since 2005, she has personally directed major investments in movies and television series.

She wields enormous power in the industry by pushing forth with projects even if the majority of her subordinates or the public disagree. A few examples include the movies “My Way” (2011) by director Kang Jae-kyu, “R2B: Return to Base” (2012) featuring Rain and “Masquerade” featuring Lee Byung-hun. Lee invested in the latter two because she supported the two actors.

CJ officials say celebrities try to become part of her inner circle because once they get her support, they can receive offers for appearances very easily.

She is also known to have a global network of foreign entertainment names. Lee, who has a master’s degree from Harvard, expanded her foreign network by suggesting co-establishing Dreamworks with Hollywood in 1994. Her network includes movie director Steven Spielberg, animation director Jeffrey Katzenberg and producer David Geffen, as well as music producer Quincy Jones who sang at her birthday party in Seoul in 2011. Actress Jessica Alba is also an acquaintance and attended one of her parties in Gangnam last April.

CJ E&M currently produces movies, TV dramas, musicals, cable TV series and commercials. It has 18 cable TV channels under its wing, which Lee personally takes care of.

CJ’s sales of movies took up 36.7 percent of the total Korean movie market last year.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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