Tongyang chief, wife on travel ban for alleged fraud and breach of trust

Tongyang chief, wife on travel ban

Oct 10,2013

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A woman cries at a rally protesting the financial regulator’s lax oversight of the Tongyang Group’s sales of commercial paper and bonds yesterday at the Financial Supervisory Service in Yeouido, western Seoul.

Prosecutors Tuesday prohibited Tongyang Group Chairman Hyun Jae-hyun and Tongyang Securities CEO Chung Jin-seok from leaving the country, a day after the Citizens’ Coalition of Economic Justice, a civic group, filed a complaint against them for alleged fraud and breach of trust. Hyun’s wife, group vice chairwoman Lee Hae-kyung, and Tongyang Networks CEO Kim Chul are also forbidden from going overseas. Hyun and Lee, daughter of group founder Lee Yang-koo, as well as senior executives at the group, are suspected of selling high-risk bonds to individual investors until just before the financial collapse of five affiliates that filed for court receivership last week. The prosecution said Special Investigation Team I at the Seoul Central District Prosecutors’ Office will lead an investigation into alleged malpractices, a move legal experts said was unusually swift.

“It is highly unusual that the prosecution handed the case to the special investigation team on the same day it received a complaint,” said judge-turned-lawyer Lee Sang-won.
“The move can be seen as the prosecution’s determination to discover hidden business irregularities at the group.”
The prosecutors are expected to look into whether the group deceived private investors by not informing them of the financial shakiness of its affiliates as it sold its commercial paper and corporate bonds.
Chairman Hyun allegedly ordered Tongyang Securities employees to advise investors to buy the bonds, especially in Tongyang Cement, which had a lower debt-to-equity ratio than other group affiliates.
From July to September this year, the troubled chaebol issued a total of 157 billion won ($146.4 million) worth of asset-based commercial paper to investors through Tongyang Securities, using shares of Tongyang Cement as collateral. The value of that commercial paper is now dubious.
There was a high degree of belief among investors and Tongyang Securities employees that Tongyang Cement would be the last to file for court receivership, if it did at all. Many expected the group to push for a voluntary debt workout program for Tongyang Cement that would involve creditors collaborating with management.
But on Oct. 1, Tongyang Cement unexpectedly filed for court receivership, and if the program is accepted then the value of Tongyang Cement shares used as collateral could become worthless. After five Tongyang affiliates filed for court receivership last week, about 4,900 retail investors who purchased commercial paper and bonds issued by the debt-saddled group are now on the brink of losing an estimated 2.3 trillion won in total. Tongyang is the nation’s 38th largest conglomerate with 31 business units.
News reports saying that Hyun’s wife allegedly withdrew billions of won from a safe-deposit box at a brokerage firm have aggravated the loss of public trust in the firm.
Aside from money losses, the scandal claimed its first life last week.
A 42-year-old worker at Tongyang Securities’ Jeju branch committed suicide on Oct. 2, leaving a suicide note asking Chairman Hyun how he could have asked his staff to deceive their own customers. In the note, the worker said she felt personally responsible for her clients’ losses. She was found dead inside her car, asphyxiated from burned charcoal briquettes.
“Chairman, you can’t do this to individual clients and to us … I apologize for not taking responsibility to the end. Chairman, please return all the money to clients,” the note read.
BY KANG JIN-KYU, KIM KI-HWAN [jkkang2@joongang.co.kr]

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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