Prosecutors Indict LS Group's 3 Corporations and 3 Chairmen Including Koo Ja-hong for 'Preferential Business Allocation'

Exclusive Allocation of Electric Copper Contracts Worth 21 Trillion Won Over 14 Years

Seoul Central District Prosecutors' Office building in Seocho-dong, Seoul.
[Photo by Yonhap News]

[Asia Economy Reporter Choi Seok-jin] Three LS Group chairmen and related corporations have been brought to trial for unfairly supporting affiliates by creating a corporation that collects so-called 'pass-through fees' and funneling electric copper orders worth approximately 21 trillion won over more than a decade.

The Seoul Central District Prosecutors' Office Fair Trade Investigation Division (Chief Prosecutor Kim Min-hyung) indicted without detention on the 4th three corporations affiliated with LS Group?LS, Nikko Dongjeon, and LS Cable & System?and Chairmen Koo Ja-hong of Nikko Dongjeon, Koo Ja-yeop of LS Cable & System, and Koo Ja-eun of LS Mtron on charges of violating the Monopoly Regulation and Fair Trade Act.

Additionally, CEO Do Seok-gu of Nikko Dongjeon, CEO Myung Noh-hyun of LS Cable & System, and Manager Park of LS Cable & System were also indicted without detention on the same charges.

All three are nephews of the late honorary chairman Koo In-hoe, the founder of LG Group, with Chairmen Koo Ja-hong and Koo Ja-yeop being brothers.

Chairmen Koo Ja-hong, Koo Ja-eun, and CEO Do are accused of establishing a 'pass-through fee' corporation in December 2005 with the approval of the controlling family, and from January 2006 to December 2019, having Nikko Dongjeon funnel a total of 2.33 million tons of domestically produced electric copper orders worth about 17 trillion won to the corporation at discounted prices, thereby unfairly supporting approximately 15 million USD (about 16.8 billion KRW).

Furthermore, LS Cable & System, Chairman Koo Ja-yeop, and CEO Myung are accused of unfairly supporting about 8.7 million USD (approximately 8.7 billion KRW) by purchasing a total of 380,000 tons of imported electric copper worth about 4 trillion won from the pass-through fee corporation and paying high margins from January 2006 to December 2016.

The electric copper orders funneled by them correspond to about 40% of the domestic electric copper market volume and 19% of the imported electric copper intermediary market volume, respectively, according to investigations.

Manager Park was charged with submitting false documents that deleted details related to the 'margin' of the pass-through fee corporation after being requested by the Fair Trade Commission in November 2017 to submit long-term contract data on imported electric copper related to unfair support activities.

After receiving a complaint from the Fair Trade Commission in October 2018, the prosecution investigated about 30 people, including company officials and employees of competing companies, from February this year until last month, and summoned the three LS Group controlling family members for questioning at the end of last month.

The prosecution concluded that 12 second- and third-generation members of the controlling family acquired 49% of the pass-through fee corporation's shares according to their respective control ratios within the group (e.g., 4.9% by Chairman Koo Ja-hong's son, 4.9% by Chairman Koo Ja-yeop's daughter, 2.9% by Chairman Koo Ja-eun) and expanded the corporation's scale through order funneling.

In particular, the prosecution judged that in November 2011, they sold all shares held by the controlling family to LS Corporation for about 9.8 billion KRW, realizing a profit of approximately 9.3 billion KRW, and used the difference as funds for maintaining management rights and succession for the second and third generations of the controlling family.

Meanwhile, LS Group stated, "We have traded at normal prices to stably supply electric copper and to enhance the competitiveness of the copper industry at the national level," adding, "We will sincerely explain the parts where there are differences in position with the Fair Trade Commission and the prosecution through ongoing administrative lawsuits and future criminal trials."

This content was produced with the assistance of AI translation services.