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MBK chairman avoids detention in Homeplus rehabilitation probe
MBK Partners Chairman Michael ByungJu Kim walks toward the Seoul Central District Court in Seocho District, Seoul, Tuesday, to attned detention hearings. Joint Press Corps
By Jun Ji-hye
MBK welcomes court's dismissal of arrest warrants, vows to pursue Homeplus recovery
MBK Partners Chairman Michael ByungJu Kim avoided detention Wednesday as the Seoul Central District Court dismissed prosecutors’ request for a warrant to detain him on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and violations of the Capital Markets Act, in connection with Homeplus’ controversial court-led rehabilitation filing.
The warrants were also denied for MBK Vice Chairman and Homeplus CEO Kim Kwang-il, MBK Vice President Kim Jeong-hwan and Homeplus Chief Financial Officer Lee Sung-jin on the same charges.
Judge Park Jung-ho, who presided over detention hearings, said, “Although the alleged harm is undeniably serious, the evidence submitted so far does not sufficiently substantiate the charges to warrant detention.”
He added that, given the degree of proof and the stage of the investigation, the case does not justify detention on the grounds of possible evidence tampering or flight.
"The suspects should instead be given adequate opportunity to defend themselves while not in custody,” he said.
Regarding the court ruling, MBK, the largest shareholder of the country’s second-largest supermarket chain, said in a statement, “We respect and appreciate the court’s prudent decision to dismiss the arrest warrants.”
The private equity firm said the prosecution had misinterpreted its efforts to restore Homeplus through the rehabilitation process and that the court’s decision reflected that the prosecution’s allegations were not sufficiently substantiated.
“MBK Partners and Homeplus will continue to make every effort to achieve a full and stable recovery,” an MBK official said. “We will continue to present and defend our position faithfully and responsibly throughout the judicial proceedings, grounded in the relevant facts and applicable law.”
Arriving at the court at around 9:40 a.m. on Tuesday to attend detention hearings, the chairman entered the courtroom without responding to reporters’ questions about whether he had a message for investors or Homeplus employees or whether he acknowledged responsibility for the case.
Prosecutors allege that the chairman and other MBK executives issued large volumes of asset-backed short-term bonds (ABSTBs) despite foreseeing a downgrade of Homeplus’ credit rating, before abruptly filing for court-led rehabilitation. The move allegedly caused losses to securities firms, including Shinyoung Securities, which had purchased the bonds.
MBK issued a combined 116.4 billion won worth of debt instruments, including ABSTBs, between Feb. 17 and Feb. 25 last year. Homeplus’ credit rating was lowered from A3 to A3- on Feb. 28, and just four days later, on March 4, the retailer filed for rehabilitation with the Seoul Bankruptcy Court.
Investigators believe MBK was aware of the risk of a credit rating downgrade before the ABSTBs were issued, but failed to disclose the information while marketing the bonds.
The three executives other than the chairman are also facing allegations of accounting fraud totaling about 1 trillion won.
Prosecutors claim that shortly before Homeplus sought court-led rehabilitation, a special-purpose company, established by MBK to acquire Homeplus, transferred the redemption rights of redeemable convertible preferred shares with a balance of about 1.1 trillion won to the retailer.
The instruments were then treated as equity rather than liabilities, a classification prosecutors say violated accounting standards.
Investigators also suspect that Homeplus inflated its balance sheet ahead of the rehabilitation filing by overstating the value of its land assets during a revaluation, which reportedly boosted the valuation to around 700 billion won, nearly double their actual market value.