Korea’s CJ billionaire chairman gets 4 years in jail, $24 million fine

CJ chairman gets 4 years in jail, $24 million fine

Feb 15,2014

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CJ Group Chairman Lee Jay-hyun leaves the Seoul Central District Court yesterday in a wheelchair after being fined and sentenced to four years behind bars. [NEWSIS]

A Seoul court yesterday sentenced CJ Group Chairman Lee Jay-hyun to four years in prison and ordered him to pay a 26 billion won ($24.4 million) fine for massive embezzlement, tax evasion and breach of trust, disappointing the country’s 14th-largest conglomerate and signaling that courts will continue to play hard ball with business moguls breaking laws.
“The defendant avoided paying taxes amounting to 26 billion won by wielding his influence as the biggest shareholder [in CJ Group],” said presiding judge Kim Yong-gwan during a verdict deliberation at the Seoul Central District Court.
The judge added that Lee created slush funds worth nearly 60.3 billion won for personal use through misappropriation of company funds in a systematic and secretive way. The court also accepted the prosecutors’ claim that Lee created paper companies offshore to transfer his illegally amassed fortune to their accounts in order to avoid paying taxes. 
“Considering the defendant’s high responsibility within CJ Group, as well as in society, it is inevitable for a court to demand him take responsibility [for his misdeeds],” said the court. It also said the disgraced mogul’s crimes have impeded the overall growth of CJ Group and damaged its image.
Lee’s defense team claimed during the course of the trials that he had only amassed piles of cash to use for the benefit of the conglomerate, a claim the court yesterday rejected.
The prosecution asked the court to give Lee a six-year prison term and a fine of 110 billion won, alleging that the 54-year-old businessman had embezzled 71.9 billion won from corporate funds.
The court spared Lee from being sent to prison straight from the courtroom, however, citing his ailing health and saying he didn’t pose a risk of flight. Lee, who was wheeled into the court in a wheelchair and wearing a face mask, didn’t answer questions from reporters when he left the court.
Lee was placed behind bars in July after he was indicted by the prosecution on charges of massive tax evasion and embezzlement. But he got out of jail in less than a month because he was granted a detention suspension in August for poor health.
He received a kidney transplant following the release.
Lee is expected to request another confinement suspension in coming days.
Particular attention has been paid to the CJ case and whether the court would suspend a jail sentence for Lee. The owners of Hanwha and LIG groups, two large conglomerates, both received three-year prison terms suspended for five years in an appellate court on Tuesday.
The court’s decision to release Hanwha Chairman Kim Seung-youn and LIG Group Chairman Koo Cha-won from jail sparked speculation that courts had returned to their tradition of treating chaebol owners with kid gloves, even when they were convicted of serious white collar crimes.
But the tough verdict for Lee suggests some courts want to be tough on the lawbreakers.
Lee’s defense team expressed disappointment and indicated that it will appeal the ruling.
BY KANG JIN-KYU [jkkang2@joongang.co.kr]


No more owner-risk, please

Feb 14,2014

Business tycoons no longer have legal immunity from corruption and wrongdoing regardless of their “contributions to the national economy.” The general feeling is that chaebol owners must face the same yardstick and punishment on illegality as any other person.
The Seoul High Court handed a three-year prison term with five years of probation to Kim Seung-youn, the chairman of Hanwha Group, for causing the group to lose millions of dollars through illegal financial bailouts and subsidies to ailing subsidiaries. Koo Cha-won, the chairman of LIG Group, received the same sentence for ordering the issue of fraudulent commercial papers. After the recent court decisions, many questioned whether the three-year jail term and five-year probation could be established as the court’s new guideline in punishing business tycoons.
After Kim was arrested and sent directly to prison after his first trial in August 2012, many outside and inside business circles came to sense a no-tolerance policy for chaebol owners. Instead of their rank and contributions to society, the courts emphasized the duty of leaders of large business groups to demonstrate responsibility in society. Suddenly, all businessmen faced the potential of breaking the law over bad business judgments after the offense of malfeasance was applied to most corporate prosecutions and investigations.
The Seoul High Court judge concluded that the money had not been used for personal greed or interests, and also took into account the tycoons’ contributions to the economy. The latest court decision may lift some of the heavy air from corporate management offices.
The court makes judgments on a case-by-case basis and decides on criminal accountability. If an entrepreneur abuses the company’s assets and uses company money for his or her own interests, he or she must be severely punished. The judge told Hanwha’s Kim that a large business conglomerate has the duty to obey the law in order to uphold responsibility befitting to its rank in society and run the business according to transparent and normal rules. The probation, however, should not send the wrong message that chaebols can easily escape punishment for wrongdoing.
Obeying the law and regulations should be the basic rule in corporate management. Companies must endeavor to build trust so that the so-called owner-risk does not undermine Korean corporate names and activities.
JoongAng Ilbo, Feb. 12, Page 34


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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