Tongyang Group Chairman Hyun Jae-hyun’s risky bets have led the mid-tier conglomerate to head toward a tragic end, producing innocent victims

2013-10-04 17:46

Tongyang investors to take fall

Financial regulator launches taskforce to help victims
By Kim Tae-jong

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Aletter to Tongyang Group Chairman Hyun Jae-hyun was found in the car where a female employee at a Jeju branch of Tongyang Securities committed suicide on Oct. 2, feeling guilty about customers’ losses

Tongyang Group Chairman Hyun Jae-hyun’s risky bets have led the mid-tier conglomerate to head toward a tragic end, producing innocent victims.
The group’s five affiliates including Tongyang Cement & Energy and Tongyang Networks have been placed under court receivership, and its previous efforts to keep afloat through bond issuance have also harmed tens of thousands of retail investors.
Pressured by the guilt over customer losses, a female employee from a Jeju branch of Tongyang Securities took her own life on Oct. 2. The brokerage affiliate sold more than half of corporate bills and bonds issued by the group.
Identified only by her surname Ko, she was found dead in her car in an apparent suicide with a suicide note and letter to chairman Hyun found in the scene.
“Chairman Hyun, you can’t do this to your employees and customers,” she wrote in her letter to Hyun. “I recommended to customers (to buy our corporate bonds and bills) to offer them high interests. I really trusted Tongynag Group.”
She also expressed her deep regret over the financial damage caused to customers, demanding the group take measures to make full compensation for them.
The police stated she made a tragic decision, and that she suffered from complaints from customers who were subject to huge losses from their investment, after the group’s five affiliates sought court receivership.Tongyang have issued corporate bills and bonds almost every month that were used for business operations and payment of maturing corporate bills and bonds, while it delayed its restructuring.
It is known that Tongyang took out loans worth 500 billion won in the past month alone when its liquidity crisis was at its peak.
Given the low credit ratings of the group’s affiliates, most bonds and bills were believed to be sold to retail investors who were simply lured by high interest rates.
According to the Financial Supervisory Service, the group’s corporate bills and bonds are held by about 25,000 and 15,000 investors, respectively.
The financial regulator has launched a taskforce team to systematically help retail investors who sustained financial losses. It suspects many retail investors were not properly informed of the risks of corporate bills and bonds.
Moral issue
Civic groups argue that Hyun ruthlessly issued corporate bonds and corporate papers to unsuspecting individual investors and even placed the healthy cement production affiliate under court supervision with the intention to maintain control of the group.
The Financial Consumer Agency representing individual investors is planning to ask prosecutors to investigate Hyun, arguing it is a fraud case as most retail investors were not properly informed of the financial problems faced by Tongyang’s affiliates.
But Hyun refuted this, saying seeking a court receivership was the last option and expressing his intention to give up management rights.
“It did not matter if I maintained control of the group,” he said in an email sent to reporters on Oct. 3. “I only tried my best to reduce damage to investors and repay corporate papers using all our assets. I feel full responsibility as chairman.”
But the sincerity of his apology has been questioned, as it is known that his wife and vice-chairman Lee Hye-gyeong emptied out the contents of her personal safe-deposit box at the head office of Tongyang Securities in Eulji-ro, downtown Seoul, a day after the group filed for a court receivership for its affiliates on Sept. 30.
“It is impossible to know how much she took out, but she had four or five big bags full of cash when she left,” an employee at the brokerage house said.
If this turns out to be true, she cannot avoid receiving harsh criticism, as she only cared about her own money while thousands of retail investors were expected to sustain huge losses.
She is the first daughter of the Tongyang Group’s founder Lee Yang-gu and has 3.42 percent, 4.96 percent and 0.12 percent shares in Tongyang Inc., Tongyang Networks and Tongyang Securities.
Tongyang Securities CEO Jung Jin-seok is also under criticism for his order to suspend the operation of the brokerage house when the group first sought court receivership for three affiliates on Sept. 30.
This was seen an act to prevent the liquidation of its stake in the affiliates held by savings banks as collateral upon the decision of court supervision.
This unsuccessful attempt opposed by executives has led the CEO to face moral criticism, as he tried to illegally limit creditors’ rights for his own sake.

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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