Fair Trade Commission to Hold Full Meeting on SK Siltron Case on 15th, Chey Tae-won to Attend in Person

Legal Battle Expected... Possibility of Additional Criminal Punishment

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Fair Trade Commission (FTC) will hold a plenary session on the 'SK Siltron Suspicion of Private Interest Appropriation' case on the 15th at the government Sejong Complex courtroom.

According to the FTC and industry sources on the 12th, SK Group Chairman Chey Tae-won, the party involved in the case, will attend the plenary session in person. It is unusual for the head of a large corporation to appear directly at a plenary session, as FTC trials do not require the parties to appear, unlike civil trials.

The FTC reportedly decided to make only part of the session public after Chairman Chey recently requested a closed deliberation for the plenary session.

This case began when SK Inc. acquired LG Siltron, a semiconductor wafer manufacturing company, in 2017.

In January of that year, SK Inc. invested 620 billion KRW to purchase 51% of Siltron's shares at 18,138 KRW per share. In April of the same year, it additionally acquired 19.6% of the remaining 49% shares at 12,871 KRW per share.

The remaining 29.4% owned by creditors including Woori Bank was purchased by Chairman Chey at 12,871 KRW per share, making Siltron a company wholly owned by SK and Chairman Chey.

However, controversy arose over SK Inc. not acquiring all the remaining shares, even though it could have bought about 30% of the remaining shares at a cheaper price after acquiring the 51% stake without the management premium.

The civic group Economic Reform Solidarity requested the FTC to investigate in November 2017 whether this matter constituted private interest appropriation by the chairman's family.

The claim is that although SK Inc. could have owned 100% of the shares at a low price, Chairman Chey was allowed to hold nearly 30%, resulting in unfair profits.

The FTC began investigating from the following year, completed it in August this year, and sent SK a review report equivalent to a prosecutor's indictment.

The FTC is reported to have tentatively concluded that the actions of SK Inc. and Chairman Chey are illegal. The review report is said to include not only fines and corrective orders but also a plan to refer the case to the prosecution.

The key issue is whether Chairman Chey secured a 'business opportunity that would bring substantial benefits' by purchasing 29.4% of the shares.

If it is proven that the company knowingly gave the chairman the opportunity to acquire shares, it falls under the 'provision of business opportunities' clause of the Fair Trade Act's private interest appropriation provisions for conglomerate heads.

The FTC has focused on proving this. At the plenary session, the FTC plans to marshal various academic papers, existing precedents, and investigation materials to prove the charges.

Although the shares acquired by Chairman Chey do not affect management rights, the FTC believes that receiving dividend income can be considered a 'substantial benefit.'

Furthermore, the FTC suspects that the company and Chairman Chey anticipated the increase in share value in advance.

In fact, SK Siltron recorded consolidated sales of 622.3 billion KRW, operating profit of 177.9 billion KRW, and net profit of 137.3 billion KRW in the first half of 2018, showing continuous growth with increases of 41.3%, 317.2%, and 397.0% respectively compared to the same period the previous year.

The fact that SK Inc. did not follow official procedures such as holding a board meeting regarding Chairman Chey's share acquisition also raises suspicions at the FTC.

In response, SK is expected to argue that it was unclear whether Chairman Chey's share acquisition was a 'substantial benefit,' and that the FTC's investigation results are retrospective claims due to a lack of understanding of market conditions and industry circumstances.

SK's position is that if the semiconductor industry's outlook had been rosy, it would be incomprehensible why LG and the creditors sold Siltron. To support this, they are expected to present reports from international associations around 2017 that negatively evaluated the wafer industry outlook and cases of global wafer companies' stock price crashes.

SK Inc. also argues that after securing management rights, it only additionally acquired 19.6%, securing 70.6% which meets the special resolution requirement at the general shareholders' meeting, so there was no reason to acquire the remaining shares. They will emphasize that by saving unnecessary additional investments, they generated significant profits through acquiring shares in the global logistics company ERS in July 2017 and investing in SK Biopharm [326030] capital increase the following year.

SK has also claimed that Chairman Chey's share acquisition process was transparent and fair, conducted through a public competitive bidding led by the creditors, competing with foreign companies.

Regarding the criticism that no board meeting was held, SK's position is that when there is no intention to invest, the board does not pass a resolution to 'not invest,' and that Chairman Chey confirmed through various internal and external channels whether a board resolution was necessary and received the opinion that submitting it to the board was unnecessary.

With both sides holding firm positions on legality, a fierce legal battle is expected in the plenary session courtroom.

If the FTC presents concrete evidence it has secured so far to argue the charges, Chairman Chey and SK are expected to rebut each point and emphasize the absence of illegality.

The decisions on fines and corrective orders by the plenary session have the same effect as a first-instance court ruling. If SK objects to the sanctions, it must file a lawsuit to cancel the fines and corrective orders at the High Court and continue the legal battle.

If the plenary session includes referral to the prosecution as part of the sanctions, the situation changes slightly. In this case, the FTC sends the referral decision to the prosecution, which then begins an investigation of SK Inc. and Chairman Chey based on the FTC's investigation materials.

Since there is a possibility of criminal punishment in addition to economic and administrative sanctions, it inevitably becomes a greater burden for SK.

Chairman Chey's unusual decision to attend the plenary session in person is interpreted as a judgment considering these factors.

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