By Jung Min-ho
Two former and incumbent Merrill Lynch officials are facing an investigation in connection with the state-run Korea National Oil Corp. (KNOC)’s failed investment in Harvest Operations, in which more than 1 billion dollars of taxpayers’ money was squandered.
Liberal politicians and civic groups jointly filed a complaint against Peter Kim, a son of a close aide to former president Lee Myung-bak, and Ahn Sung-eun, a former head of the Merrill Lynch Seoul office, with the Seoul Central District Prosecutor’s Office on Thursday.
The accusers, including Rep. Kim Je-nam from the minor opposition Justice Party, claimed that they played a pivotal role in helping Merrill Lynch be selected as an investment advisor for the botched project by using Peter Kim’s connection with the former president. Kim is now the head of the Seoul office, while Ahn no longer works for Merrill Lynch.
Based on its performance in mergers and acquisitions in recent years, Merrill Lynch was evaluated as only the fifth-best choice out of 10 candidates, but was eventually selected after examiners rated it highly in a subjective assessment, they said.
“We wonder what the criteria for the subjective assessment was,” a group of politicians and civic groups, including the People’s Solidarity for Participatory Democracy, said in a statement. “That has led us to have a reasonable suspicion over external pressure from power brokers under Lee’s administration.”
They pointed out that Peter Kim’s father is Kim Baek-jun, a former presidential secretary of general affairs in the Lee administration.
Regardless of how the selection process was carried out, it’s clear that Merrill Lynch’s advice turned out to be wholly misguided.
In 2009, the KNOC took over Harvest Operations, a Canadian oil producer, along with its faltering subsidiary company North Atlantic Refining Limited (NARL), for about $4 billion.
The Canadian refinery unit has allegedly sustained 100 billion won in losses annually, leading the KNOC to sell NARL back to SilverRange Financial Partners LLC.
Politicians, who are now investigating the case, said the losses are estimated to be 1.7 trillion won ($1.5 billion)
Yet, during the disastrous project, Merrill Lynch took about $7.4 million as a “success” fee.
“We call for an urgent and thorough investigation into the case,” the union said. “Peter Kim was a mere director of the project but played a far larger role than what appeared to be the case.”
In November, the union filed a complaint with the prosecution against key KNOC officials of the project, including former president Kang Young-won; he has not been questioned as of yet.
In January, the Board of Audit and Inspection said the KNOC “recklessly” acquired an unhealthy refining firm without a sufficient review in order to make up for its stagnant M&A performance.
The state auditor also noted that Kang knew of the prospect of major losses, but went ahead with the acquisition to attain yearly performance goals, adding that it had referred Kang to the prosecution on negligence charges.