Prosecution Indicts SPC Chairman Heo Young-in for Breach of Trust... Investigation into Unfair Support Continues (Comprehensive)

SPC Group Chairman Heo Young-in is making a public apology at the SPC headquarters in Seocho-gu, Seoul, regarding the recent employee death accident that occurred at the affiliate SPL. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Kim Hyung-min] Heo Young-in, chairman of SPC Group, has been indicted on charges of instructing the sale of affiliate company stocks at a low price to evade gift tax for the controlling family.

The Fair Trade Investigation Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Lee Jung-seop) indicted Chairman Heo without detention on the charge of breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes on the 16th. Former SPC Group General Manager Cho Sang-ho and Paris Croissant CEO Hwang Jae-bok were also indicted together.

According to the prosecution, in December 2012, Chairman Heo and others sold Milda One stocks held by Paris Croissant and Shani to Samlip at 255 KRW, which was significantly lower than the acquisition price (3,038 KRW in 2008) and the previous year's valuation (1,180 KRW). The prosecution judged that the appropriate price should have been 1,595 KRW based on the market price. Through this, Shani incurred a loss of 5.81 billion KRW, Paris Croissant incurred a loss of 12.16 billion KRW, while Samlip gained 17.97 billion KRW.

The prosecution determined that the stocks were sold at a low price to evade gift tax imposed on the controlling family. In January 2012, a legal amendment introduced the 'work allocation' gift tax, which taxes profits from transactions with related parties by controlling shareholders as gifts. At that time, SPC Group had a structure where Samlip purchased flour produced by Milda One and supplied it to affiliates. However, since the controlling family effectively owned Milda One through Paris Croissant (100% family-owned), Milda One's sales could be considered gifts to the controlling family.

Therefore, if Paris Croissant, Shani, and others did not sell Milda One stocks to Samlip within 2012, they were likely to have to pay 800 million KRW annually in gift tax. The prosecution believes Chairman Heo urgently instructed the low-price transfer to avoid this. Through this, Chairman Heo saved 7.4 billion KRW over the past 10 years.

The prosecution pointed out, "From the perspective of Paris Croissant and Shani, they did not review the necessity of stock transfer, did not negotiate prices, and designated the valuation method without determining an appropriate price, and did not go through a board resolution."

They added, "Paris Croissant and Shani borrowed several billion KRW from financial institutions, and if their general assets decrease, creditors would suffer damages. The controlling family's arbitrary transactions of shares between affiliates constitute an abuse of corporate systems."

This investigation began in October 2020 when minority shareholders of Shani filed a complaint with the prosecution against Chairman Heo and the SPC controlling family. Since last month, the prosecution has conducted raids on SPC Group headquarters and summoned Chairman Heo and others for investigation.

An SPC official stated regarding the indictment of Chairman Heo and others, "The transfer of Milda One stocks by Shani was conducted through proper procedures and valuation standards by an external accounting firm, so it is regrettable that they have been indicted. We will actively clarify misunderstandings during the trial process."

The prosecution plans to continue investigating the case reported by the Fair Trade Commission regarding unfair support activities among affiliates, as the statute of limitations has not yet expired. Previously, the Fair Trade Commission reported that SPC provided a total benefit of approximately 41.4 billion KRW to SPC Samlip through unfair support within the group from April 2011 to April 2019 under the involvement of the controlling family, and filed a complaint against Chairman Heo and others with the prosecution in July 2020.

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