"Former Chairman Choi Jong-hyun Could Not Acquire Taepyeongyang Securities Solely with Income"

Published 10 Jun.2024 15:17(KST)

Acquisition Funds for Taepyeongyang Securities (Now SK Securities)
Choi: "Affiliate's Money" vs Noh: "Father's Money"

The biggest issue in the appeal trial of the divorce lawsuit between Chey Tae-won, chairman of SK Group, and Noh So-young, director of Art Center Nabi, was whether there was any contribution from Director Noh's side, such as the inflow of slush funds from the late former President Roh Tae-woo, during the process of forming SK's assets.

According to Legal News' investigation, there was a part where both sides gave the same testimony regarding this issue. It was that Chey’s father, the late Chey Jong-hyun, could not have acquired Taepyungyang Securities with his personal income alone at that time.

During the appeal trial, Chey’s side reportedly claimed, “The acquisition funds were prepared through affiliates.” On the other hand, Director Noh’s side countered, “A significant portion of the acquisition funds originated from money supported by former President Roh, Director Noh’s father, to the late Chey Jong-hyun.”

[Image source=Beomryul Newspaper]

The court interpreted that if the acquisition funds indeed came from SunKyung affiliates as claimed by Chey’s side, it would be evidence of embezzlement by the late Chey Jong-hyun. However, when Chey’s side failed to submit evidence proving the funds came from affiliates, the court ruled in favor of Director Noh’s side.

In the past, the late Chey Jong-hyun, in a personal capacity, signed a contract in December 1991 to acquire 2.83 million common shares of Taepyungyang Securities for a total of 57.166 billion won. After acquiring the shares and paying the price, the company name was changed to SunKyung Securities in March 1992. However, at the time of acquiring Taepyungyang Securities, the late Chey was unable to cover the acquisition funds with personal income alone.

It was revealed that the late Chey raised funds through irregular financial transactions, such as buying and selling negotiable certificates of deposit and industrial finance bonds on the same day via Lucky Securities. As this circumstance came to light, the media and others raised suspicions that the money was likely abnormal, such as slush funds or affiliate funds.

In the appeal trial of the divorce lawsuit, the court stated, “Around October 1992, during a National Assembly audit of the National Tax Service, Assemblyman Kim Won-gil questioned the source of the late Chey’s acquisition funds for Taepyungyang Securities and said that tax investigations and fund-tracking investigations by the National Tax Service and others were necessary. However, no tax investigation by the National Tax Service or fund-tracking investigation by the Bank Supervisory Service was conducted.”

The court also explained, “Son Gil-seung, honorary chairman of SK Telecom, submitted a statement saying, ‘I thought there would be no problem if some funds from affiliates were used to purchase Taepyungyang Securities shares and later returned to the respective affiliates.’ However, considering △ the fact that specific and individual records regarding how much money came from each affiliate and how are supposed to be prepared and kept, but Chey’s side claims they do not keep such records △ and the fact that Chey donated SK Securities shares inherited from the late Chey to SK Securities itself as treasury stock during SK Securities’ crisis, rather than to SK Group affiliates, it is difficult to easily believe the claim that Taepyungyang Securities was acquired with funds from SunKyung Group affiliates.”

Regarding this, the court requested clarification and asked Chey’s side to submit related materials supporting the claim that the funds were affiliate funds, but Chey’s side did not submit them. Ultimately, the court ruled, “It is difficult to accept the claim that Taepyungyang Securities was acquired with SK affiliate funds without objective evidence.”

Perceived as a Protective Shield and Barrier Due to In-Law Relationship

The court acknowledged, as claimed by Director Noh’s side, that the presence of former President Roh, who was the sitting president at the time, contributed to SK’s growth. Taepyungyang Securities was acquired with funds whose origin was difficult to clarify, and shortly thereafter, SK entered the mobile telecommunications business acquisition process.

The court judged, “As a general entrepreneur, it would have been a very difficult and risky venture considering the ripple effects and disadvantages if discovered during the taxation process, but the late Chey undertook it,” and “At that time, SK entered the mobile telecommunications business without suffering disadvantages, and the entry into the telecommunications business laid the foundation for growth.”

In particular, the court emphasized that the background allowing the late Chey to take such a risky action was that the sitting president at the time of acquiring Taepyungyang Securities was former President Roh.

The court said, “When SK acquired Korea Mobile Communications, it was right after former President Roh’s retirement, and the late Chey made an additional judgment that he would at least not suffer disadvantages and actually carried it out,” adding, “The late Chey perceived the in-law relationship with former President Roh as a protective shield and barrier and took risky management ventures, which ultimately succeeded. It is reasonable to see that Director Noh’s side contributed to SK’s growth.”

Furthermore, regarding the source of funds, the court explained, “If the funds were former President Roh’s money as claimed by Director Noh’s side, it would raise moral and political issues, but if Chey’s side’s claim is accepted, it would go beyond political and managerial issues and inevitably lead to criminal punishment for ‘embezzlement.’”