Will the Central District Prosecutors' Office Draw the Sword on Corporate Affairs?

Published 21 Aug.2024 14:09(KST)

Sampyo Industry, Unfair Support by Second-Generation Owner
Case Assigned to Fair Trade Investigation Department

The Fair Trade Investigation Division of the Seoul Central District Prosecutors' Office is drawing attention as it is expected to launch a full-scale corporate investigation starting with the Sampyo Group case.

According to legal circles on the 19th, the Fair Trade Investigation Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Kim Yong-sik) recently received the case in which the Fair Trade Commission (FTC) filed a complaint against Sampyo Industrial for violating the Fair Trade Act.

[Image source=Yonhap News]

Earlier on the 8th, the FTC announced that it imposed a corrective order and a fine of 11.62 billion KRW on Sampyo Industrial, a Sampyo affiliate, for unfairly supporting SP Nature, where the second-generation heir of the corporate owner is the largest shareholder, and that it would file a complaint against Sampyo Industrial, the supporting entity, with the prosecution. SP Nature is a company in which Jung Dae-hyun, vice chairman and son of Sampyo Group Chairman Jeong Do-won, holds a 71.95% stake as the largest shareholder. It was also the workplace of lawyer Shim Woo-chan (50, 40th class), brother of Prosecutor General nominee Shim Woo-jung (53, 26th class), who served as head of compliance until he was recruited by Kakao in May.

The FTC found that Sampyo Industrial, a core affiliate of the Sampyo Group, unfairly supported SP Nature, a producer of 'powder,' a cement substitute, by purchasing ready-mixed concrete raw materials at inflated prices from January 2016 to December 2019. It was investigated that SP Nature gained approximately 7.496 billion KRW in profits through such unfair internal transactions compared to normal supply prices.

There is also speculation that the Fair Trade Investigation Division of the Central District Prosecutors' Office, which had been quiet in corporate investigations, will now actively begin corporate investigations with this case. Previously, the FTC filed complaints with the prosecution regarding the 'Coupang ranking manipulation suspicion' case, but the Supreme Prosecutors' Office assigned the case to the Criminal Division 6 of the Seoul Eastern District Prosecutors' Office. However, as investigations related to First Lady Kim Geon-hee have recently concluded, there is a growing atmosphere that corporate investigations by the Central District Prosecutors' Office's Fair Trade Investigation Division will resume.

There is also a possibility that the prosecution's investigation will expand to include the family of the corporate owner. The FTC did not file complaints against individual executives in this case, citing insufficient evidence to prove the allegations. However, the FTC views this case as an act of unfairly supporting the second-generation company of the corporate owner during the succession process. SP Nature secured funds by selling powder to Sampyo Industrial and then increased its shareholding by participating in paid-in capital increases of Sampyo and Sampyo Industrial. Chairman Jeong Do-won of Sampyo is the father-in-law of Hyundai Motor Group Chairman Chung Eui-sun.

A lawyer specializing in fair trade at a major law firm explained, "Since the scale of unfair support is not small, it seems highly likely that the prosecution will exercise its right to request complaints against individuals depending on the investigation results," adding, "The prosecution has recently been actively exercising its right to request complaints to the FTC in cases of Fair Trade Act violations."

In the case of Cho Hyun-bum, chairman of Hankook Tire & Technology (Hankook Tire), the investigation began due to the prosecution's request for a complaint. In November 2022, the FTC only filed a complaint against the Hankook Tire corporation in the affiliate unfair support case and did not file against Chairman Cho personally. The prosecution confirmed Chairman Cho's involvement through additional investigations, exercised its right to request a complaint against him, and expanded the investigation to the owner family. Chairman Cho was indicted while in custody in March last year.

According to Article 129 of the Fair Trade Act, the FTC has exclusive authority to file complaints in cases of Fair Trade Act violations. However, the prosecution, Board of Audit and Inspection, Ministry of SMEs and Startups, and Public Procurement Service can request the FTC to file complaints, and the FTC must file complaints with the prosecution upon such requests.