Hyosung Chairman Cho Hyun-joon Fined 200 Million Won in First Trial for 'Unfair Support to Affiliates' Charges

Chairman Cho Hyun-joon of Hyosung Group / Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kim Daehyun] Cho Hyunjun, chairman of Hyosung Group, who was prosecuted on charges of unfair support to affiliates, was sentenced to a fine of 200 million won in the first trial.

On the 15th at 10 a.m., Judge Yang Hwansung of the Criminal Division 3 of the Seoul Central District Court sentenced Chairman Cho, who was indicted for violating the Fair Trade Act, accordingly. The Hyosung corporation, which was also indicted, was fined 200 million won, and former Hyosung Finance Headquarters Fund Team Manager Lim Mo, Hyosung Investment Development CEO Song Hyeongjin, and Hyosung Investment Development corporation were each fined 50 million won.

The court stated, "Through unfair support, Galaxia Electronics (GE) escaped a crisis situation, and the defendant received unfair economic benefits such as maintaining management rights 'free of charge.' Using affiliates for the personal benefit of the head of a large business group undermines corporate transparency and negatively affects the entire national economy by transferring insolvency to other affiliates."

However, the court added, "It is clear that the scale of economic benefits is considered unfair, but the amount has not been specifically calculated," and "Since the risks and losses that Hyosung Investment Development was supposed to bear did not materialize, it can be evaluated that Hyosung did not suffer any actual damage."

Earlier, in December 2019, Chairman Cho was prosecuted on charges of illegally supporting GE, an affiliate where he is the largest shareholder, through Hyosung Investment Development, an affiliate of Hyosung Group, using a total return swap (TRS) transaction method. TRS refers to a transaction where a financial company establishes a special purpose company (SPC) to purchase shares of a specific company and receives regular fees from the company's investment source.

The Fair Trade Commission judged that when GE, Chairman Cho's personal company, faced the risk of being delisted due to management difficulties, the group provided funds by offering a free-of-charge guarantee for about 25 billion won of convertible bonds (CB) issued by GE, and reported Chairman Cho and others to the prosecution in 2018.

During the trial, Chairman Cho's defense lawyer argued that "Hyosung Investment Development's transaction counterpart is only the SPC, and since it did not directly contract with GE, which is an affiliate under the Fair Trade Act, the Fair Trade Act does not apply."

On the other hand, the court ruled that "the actual transaction counterpart of Hyosung Investment Development is GE, and this support transaction is judged to be a case of using a third party as an intermediary to evade related regulations." The court also added that Chairman Cho played a key role by effectively giving 'instructions' during each transaction process.

At the last closing argument, the prosecutor requested the court to sentence Chairman Cho to two years in prison, stating, "Hyosung Investment Development, a subsidiary of the listed company Hyosung, was treated as an appendage of Hyosung Group or the defendant's private property."

At that time, Chairman Cho made his final statement, saying, "I should have managed the company's affairs more carefully, but I failed to do so, and I am sorry. Since everything happened due to my shortcomings, I ask for leniency for those who were indicted together with me as much as possible."

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