The fiasco of the troubled Tongyang Group is unfolding in an uglier way as the chairman’s family is accused of making selfish, immoral decisions when the collapse of the mid-tier conglomerate is harming tens of thousands of innocent people

2013-10-07 17:17

Tongyang owners under investigation

Moral hazard angers investors
By Kim Tae-jong

The fiasco of the troubled Tongyang Group is unfolding in an uglier way as the chairman’s family is accused of making selfish, immoral decisions when the collapse of the mid-tier conglomerate is harming tens of thousands of innocent people. The group chairman’s wife and vice-chairwoman Lee Hye-gyeong is under criticism because she is suspected of taking out gold bars worth billions of won from the head office of Tongyang Securities in Eulji-ro, downtown Seoul.She is the first daughter of the group’s late founder Lee Yang-gu. She has 3.42 percent, 4.96 percent and 0.12 percent stake in Tongyang Inc., Tongyang Networks and Tongyang Securities.
With criticism mounting against her and her husband, the Financial Supervisory Service (FSS) decided Monday to request the prosecution to investigate the owner family.
“During our special probe, we have found irregularities involving the Tongyang owner family,” an official from FSS said.
Previously, the financial regulator investigated the allegations involving Lee by analyzing the video footage from the CCTV installed at the brokerage house.
The footage shows that Lee visited the brokerage house at around 9 a.m. on Oct. 1 along with her secretaries and went to the room with safe-deposit boxes on the second floor, and left it with three large bags and a shopping bag, an employee from the firm said.
It was just two days after the group filed for a court receivership for its affiliates on Sept. 30.
He also said another employee found empty gold bar packages and boxes in a trash bin on the second floor when they left.
Previously, she was also found to have taken out 600 million won in cash from her personal safe-deposit box at the brokerage house on Sept. 29.
Her husband and the group chairman Hyun Jae-hyun is also being severely criticized for his risky bets to maintain control of the group at the cost of retail investors.
Civic groups have asked prosecutors to investigate Hyun, arguing it is a fraud case as he ruthlessly issued corporate bonds and corporate papers to unsuspecting individual investors.
They also claimed that he even placed a healthy cement production affiliate under court supervision with the intention to maintain control of the group.
Tongyang has 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.
But the group decided to seek a court receivership for its five affiliates including Tongyang Cement & Energy and Tongyang Networks after it failed to repay maturing debts.
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 the corporate bills and bonds.
According to FSS, the number of retail investors who bought corporate bonds and papers issued by Tongyang is estimated at 50,000.
Of them, about 20,000 victims have made a complaint with FSS or the Financial Consumer Agency (FCA), a civic group representing individual investors. But the number is expected to continue to increase.
Unhappy with the countermeasures by the financial regulator, a group of retail investors are now planning to hold a protest in front of FSS in Yeoido, Seoul on Oct. 9.
FCA is also blaming FSS for its negligence to prevent the Tongyang case, demanding the FSS Governor Choi Soo-hyun to step down.
2013-10-07 17:19

Insurance unit to be split from ailing group

By Kim Tae-jong

Tongyang Life Insurance announced Monday that it has decided to cut ties with Tongyang Group by seeking independent management and changing the company’s name.
This is a desperate move to minimize the impact from the troubled group, whose five affiliates have recently been placed under court receivership.
The insurer said it held a board of directors meeting in the morning to decide on the establishment of an independent management committee, which will include the Vogo Fund, the largest shareholder of the insurance firm.
The committee will consist of Vogo Fund co-CEO Park Byung-moo and the insurer’s CEO Goo Han-seo with Park chairing the committee.
The committee will serve as the highest decision making body, the firm said.
“The insurer’s management will be responsible for sales, product development and so on, as it has been so far,” an official from the insurance firm said. “The committee will deal with spin-off procedures, the change in name and decision-making procedures regarding critical issues.”
The establishment of the committee will pave the way for Vogo Fund to control management of the insurance firm.
Now, the board of directors consists of six executives designated by Tongyang Group and three by Vogo Fund, but the private equity fund’s management role has been practically limited.
The committee will focus on preventing damage to the reputation of the insurance firm from the liquidity crisis in the group and easing the concerns of policyholders.
Most importantly, it will push forward a plan to be independent from the group as soon as possible.
The insurance firm has already requested a law firm to conduct legal procedures for the planned spin-off and submitted an application for the separation to the Fair Trade Commission.
It also plans to seek ways of obtaining managerial independence from Tongyang Asset Management Corp. and secure financial soundness. The insurer has a 73 percent stake in the asset manager.
But the firm said it will be careful about the name change.
“We’re considering changing the company name, but it will not be easy, because we have to take many things into consideration such as costs, timing and the brand image associated with the current name,” a spokesman said.

Tongyang investigation widens

FSS asks prosecutors to probe owner-family members, chairman

BY LEE EUN-JOO [angie@joongang.co.kr]

Oct 08,2013

The crisis involving debt-ridden Tongyang Group is escalating, with the country’s financial regulator announcing yesterday it will request a prosecutorial investigation into the owner family of the conglomerate, including Chairman Hyun Jae-hyun.
“We were able to find irregularities taking place involving some major shareholders of Tongyang Group,” said Kim Gun-sop, senior deputy governor at the Financial Supervisory Service yesterday. “We have dispatched additional inspectors to look into the case, and at the same time we have decided to ask the investigation authority for an investigation.”
Kim, in a press briefing yesterday, added that since Sept. 30 the FSS has been conducting a special inspection into Tongyang Group, including its brokerage arm Tongyang Securities, and has been looking into financial allegations raised by civic groups and the media.
“Although we’re not able to elaborate on the details because the inspection is ongoing, we have found some shareholders suspected of being involved in irregular practices and illegal trading in regard to issuing commercial paper,” Kim told reporters.
There has been growing criticism of Tongyang Group for selling high-risk bonds to individual investors until just before the financial collapse of five affiliates that filed for court receivership last week. Industry sources note that Chairman Hyun was the one who ordered Tongyang Securities employees to advise consumers to make investments, especially into Tongyang Cement in which the debt to equity ratio was relatively lower than other group affiliates.
There was a high degree of speculation among investors and Tongyang Securities employees that Tongyang Cement would be the last – if it does at all – to file for court receivership program. Many had expected the group to push forward with a voluntary workout program for Tongyang Cement that would involve creditors collaborating with management to reduce the debt level instead of a court pushing for restructuring.
There also is growing speculation that Hyun’s wife, Lee Hae-kyung, who is the group’s vice chairwoman and daughter of founder Lee Yang-koo, allegedly withdrew billions of won from a safe-deposit box at Tongyang Securities last week. The FSS is analyzing video footage from a closed-circuit television handed over by the brokerage’s labor union.
The Citizens’ Coalition for Economic Justice, meanwhile, yesterday accused Hyun and Tongyang Securities CEO Chung Jin-seok of fraud and breach of trust.
“From July to September, Tongyang Corporation [the de facto holding company of Tongyang Group] issued a total of 157 billion won [$146.3 million] worth of asset-based commercial paper sold to consumers through Tongyang Securities,” the coalition said in a statement. “The commercial paper was issued by using shares of Tongyang Cement as collateral.
But Tongyang Cement on Oct. 1 unexpectedly filed for court receivership, and if the program is accepted commercial paper that has Tongyang Cement as collateral would become worthless.
A group of retail investors is also expected to hold a rally tomorrow in front of Financial Supervisory Service headquarters in Yeouido, western Seoul, to urge the country’s financial regulator to protect their assets. Last week, the group gathered in front of Hyun’s residence to protest a lack of responsibility by the owner family. Tomorrow’s rally is expected to blame the country’s financial regulator for not preventing the Tongyang Group crisis and failing to regulate Tongyang Securities’ sale of commercial paper and corporate bonds to retail investors in September.
Lawmakers have also started to get involved.
Saenuri Party floor leader Choi Kyung-hwan yesterday said that if the alleged unethical practices by Tongyang Group are true, then the owner family would inevitably face legal punishment and social responsibility.