KT ENS may file for bankruptcy if it fails to settle damages from a large-scale loan fraud committed by one of its workers in collusion with its subcontractors

2014-02-09 16:26

Loan scam too big for KT affiliate

By Kim Rahn
KT ENS may file for bankruptcy if it fails to settle damages from a large-scale loan fraud committed by one of its workers in collusion with its subcontractors.
With loans from banks and savings banks being estimated at 300 billion won ($279 million), the company with 57 billion won paid-in capital may not be able to repay the money if courts find it wholly responsible for the fraud.
According to the Financial Supervisory Services (FSS), Sunday, the worker, surnamed Kim, allegedly fabricated loan-application documents for a special purpose company (SPC) set up by six subcontractors of KT ENS. Kim and the heads of the subcontractors took about 300 billion won in loans through the SPC.
Of the 300 billion won, 162 billion won was from Hana Bank, about 19 billion won each from NH NongHyup Bank and KB Kookmin Bank, and the rest from 14 savings banks.
The banks claim KT ENS should be held accountable for the repayment of the loan, and if the firm cannot pay it all back, its parent firm, KT, will have to take responsibility.
The exact amount of the loans has not been confirmed yet, as real and bogus loans are mixed in the 300 billion won which Kim and the subcontractors applied for since 2008.
If the entire 300 billion won is found to be fraud-based, it may be beyond what KT ENS can afford.
“After a police investigation, involved entities, such as KT ENS and the banks, will file lawsuits to decide how much responsibility they share. Once a court decides on KT ENS’s portion, the company will take measures to pay back the money,” a KT official said.
“The worst case is that KT ENS alone is responsible, a scenario which we don’t think likely. If so, it will take every possible measure, which may include filing for bankruptcy,” he said.
He said KT may have to find ways to help KT ENS as the parent firm.
Both KT and KT ENS said the issue was an individual worker’s misconduct, and it is the SPC, not KT ENS, that applied for the loans.
“KT ENS has not ordered mobile handsets from the subcontractors. We have neither offered guarantees to the banks, nor permitted the use of the company’s official stamp. Paper tax invoices were used in the loan applications, whereas we stopped using paper invoices in 2011 and only use electronic ones,” KT ENS said in a statement.
“The loan was extended to the SPC, not KT ENS, and we think Kim was an assistant. So the probe should be focused on the subcontractors,” it said.
Widening its investigation, the FSS suspects Kim and the subcontractors’ possible collusion with staff at the affected banks.
“The amount of loans was huge and the fraud has continued for years. It is hard to understand that staffers at the banks did not know about the scam, so we are looking into whether there were accomplices at the banks,” an FSS official said.
He said, “The number of involved financial companies and the amount of the loan may be larger than initially known.”
Over the repayment of the loan, multiple lawsuits are expected among KT ENS, the SPC, the banks, and brokerage houses that offered payment guarantees to the banks.
The banks claim KT ENS is responsible for its worker’s crime, while the company claims it was a personal misconduct. The banks also claim the brokerages have to guarantee the payment, while the houses claim they do not have to because the collateral was fake.

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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