By Nam Hyun-woo
The Financial Supervisory Service (FSS) is investigating chemical and textile giant Hyosung Group over claims it allegedly hid bonds with warrants (BWs) worth $26 million, the top financial regulator said Monday.
According to the FSS, it is investigating the whereabouts of the overseas BWs, which the group issued in 1999 and 2000 and later promised to buy back.
BWs refer to corporate bonds attached with a preemptive right to purchase the company’s new stocks at a set price.
In 1999 and 2000, the group issued BWs worth $60 million and it was found later that some 60 percent of them went to Chairman Cho Suck-rai and his family members.
In 2003, a number of civic groups claimed that a significant amount of BWs were used for Cho family’s inheritance and the FSS launched an investigation into the allegation.
The group announced on Dec. 17, 2003, through a statement that it would buy back the warrants attached to the problematic bonds to scrap them.
Hyosung claimed that it has scrapped the $34 million bonds, but the whereabouts of the remainder, worth $26 million, was still questioned by many, until the National Tax Service (NTS) in 2013 found that some $10 million of those bonds were used.
The 2013 NTS probe showed that Hyosung has created four paper companies in Hong Kong to exert the preemptive right and acquired its shares worth 8.7 billion ($7.58 million) won, gained 6.9 billion won as margin, while evading relevant taxes. At that time, the NTS referred the chairman’s case to the prosecution and the chairman was indicted on charges of tax evasion and several other corporate crimes.
Last year, the FSS was criticized for neglecting its duty by failing to track the whereabouts of the remaining $26 million. In response, FSS Gov. Zhin Woong-seob pledged that it would launch an investigation into the issue.
However, it is not sure whether the financial watchdog can further regulate the group, because a Seoul lower court in January found Cho not guilty of the charge of tax evasion through the BWs. For other charges, Cho was sentenced to a three-year prison term.