10 Top Executives in South Korea Indicted on Stock Charges

10 Top Executives in South Korea Indicted on Stock Charges

By DON KIRK
NYT

EOUL, South Korea, March 11 — Ten executives of the SK Group, Korea's third largest conglomerate, were indicted today on charges of illegal securities transactions in a case with ramifications for many of the family-controlled groups that have dominated Korea's economy since the Korean War.

The titular chairman of the SK Group and the chairman of the SK Corporation, Korea's leading oil refiner, were among those indicted on charges of manipulating the value of stocks and inflating profits in an effort at solidifying family control over the group.

Chey Tae Won, 42, nephew of the group founder and son of the younger brother who welded the group into a dynamic force in the Korean economy, remained in jail along with an important aide, Kim Chang Keun, head of the group's restructuring team.

Son Kil Seung, the group chairman, and seven other executives, although indicted, were not detained.
Mr. Son, chairman of the Federation of Korean Industries, made up of top executives of Korea's conglomerates, known as chaebol, was interrogated for 12 hours last week and then sent home. He was believed to have cooperated in providing important information in buttressing the prosecution's case against Mr. Chey, the central figure in the investigation.

Lee In Kyu, the prosecutor in charge of the case, the first in which conglomerate executives have been indicted for illegal transactions among companies within a group, viewed it as setting a precedent for investigations into other conglomerates.

No longer can Korea's leading companies "suffer from an incurable cancer in corporate governance and transparency," he said, expressing the hope that SK and other groups would become "more trustworthy businesses by improving their accounting practices and corporate transparency."

Jang Ha Sung, a finance professor at Korea University who has been leading shareholder protests against family control of the chaebol, said he was not certain the SK investigation would lead to prosecution of executives of other groups.

"The SK case shows they still have a huge problem with the chaebol," he said. "The government has to push for further reform."

The charges revolved mainly around the sale of Mr. Chey's stock in the Sheraton Walker Hill Hotel, one of Seoul's oldest and best-known hotels, to another SK company, which paid Mr. Chey in stock in the SK Corporation, the group's centerpiece company.

The indictments also charged that executives of SK Global, the group's trading arm, had falsified documents, adding 1.5 trillion won, about $1.2 billion, to profit statements.

In addition, SK executives were charged with covering up the terms of a deal in which SK Global bought back shares that it had sold to J. P. Morgan. Although J. P. Morgan has not been accused of wrongdoing, prosecutors have said that SK covered up the fact that it had to buy back the shares at their original prices, which by then were above the value to which they had fallen.

The SK Group headquarters issued a formal apology for "the trouble caused the group and the nation" and said that Mr. Chey had agreed to return all the shares that he had acquired in the SK Corporation as a result of the sale of his shares in Sheraton Walker Hill.

The transaction guaranteed him power over the whole group by giving him a stake of approximately 6 percent in the SK Corporation, making him the company's leading shareholder.

The SK Corporation, through a network of interlocking share ownerships typical of the way the chaebol are organized, basically controls the rest of the group. Mr. Chey's father, Chey Jung Hyun, controlled the group until his death in 1998. He took over after the death of the group's founder, Chey Jung Gon, 30 years ago.

Neither the apology nor the promise to undo the original deal came soon enough to prevent the stock in the group's 11 listed companies from plunging on the Korea Stock Exchange, which fell by 2.15 percent today to its lowest level in 17 months.

SK Corporation shares led the dropoff, falling by the 15 percent limit. Shares in SK Telecom were down 12. 3 percent and shares in SK Securities dropped 8.6 percent.