Prosecution Appeals 1st Trial Fine Against Cho Hyun-joon for 'Unfair Support to Affiliates'

Law "Negative Economic Impact on the Entire Population... No Actual Damage"

[Asia Economy Reporter Heo Kyung-jun] The prosecution has appealed the first-instance ruling that sentenced Cho Hyun-joon, chairman of the Hyosung Group, to a fine of 200 million won on charges of ‘unfair support to affiliates.’

According to the legal community on the 17th, the prosecution filed an appeal with the Criminal Division 3 of the Seoul Central District Court, which handled the first trial of Chairman Cho’s case.

In December 2019, Chairman Cho was brought to trial on charges of illegally supporting GE, an affiliate where he is the largest shareholder, through Hyosung Investment Development, a Hyosung Group affiliate, using a total return swap (TRS) transaction method. TRS refers to a transaction method in which a financial company establishes a special purpose company (SPC) to purchase specific corporate stocks and receives regular fees from the investment destination of that company.

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

On the 15th, Judge Yang Hwan-seung of the Criminal Division 3 of the Seoul Central District Court sentenced Chairman Cho to a fine of 200 million won, the indicted Hyosung corporation to a fine of 200 million won, and former Hyosung Finance Headquarters Fund Team Leader Lim Mo, Hyosung Investment Development CEO Song Hyung-jin, and Hyosung Investment Development corporation to fines of 50 million won each.

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

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

Earlier, at the sentencing hearing, the prosecution requested the court to sentence Chairman Cho to two years in prison, arguing that "Hyosung Investment Development, a subsidiary of the listed company Hyosung, was treated as an appendage of the Hyosung Group or the defendant’s private property."

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