Lotte founder Shin may face probe over false reporting on ownership

Lotte Group founder Shin Kyuk-ho may face a prosecution probe over suspicions of false information reporting over his ownership of the retail giant, the Fair Trade Commission indicated Monday.

"We found differences between data in regulatory filings submitted by Lotte last year, regarding general chairman Shin's shareholdings in Lotte affiliates, and our investigation results," an FTC official said.

The antitrust watchdog said it would consider bringing Shin to the prosecution if the suspicion turns out to be true.

The FTC took the tough stance against the owner of the nation's fifth-largest conglomerate after it disclosed Lotte's complicated and lesser-known ownership structure.

According to FTC's six month-long investigation, Shin was found to be controlling the retail giant with a 0.83 per cent stake in Japan-based firm Kojunsha, the apex of the retail giant's entire governance structure.

"Lotte is a Korean conglomerate, controlled by Japanese affiliates," the FTC said in a press release.

As of October last year, Kojunsha, the small Japanese packaging company, created in 1967, has a grip on Lotte's Japanese units by controlling Lotte Holdings, the de facto holding company of its Japanese arm, with a 28.1 per cent stake.

The company also controls the group's firms in Korea through Lotte Holdings, the largest shareholder of Hotel Lotte, which also controls major Korean affiliates.

Despite Shin's tiny piece in the pie, it was possible for him to act like a "king'' in the Lotte empire for decades as his family members, including Japanese wife and two sons, hold around 90 per cent stake in Kojunsha, officials said.

To the disappointment of the Korean public, the antitrust body did not reveal details of other shareholders and their stakes in Kojunsha, due to concerns about legal issues.

Ousted Shin Dong-ju, the eldest son of the group founder and the former vice chairman of Lotte Holdings, reportedly has a bigger stake in Kojunsha than that of his younger brother Shin Dong-joo, chairman of Lotte Group.

The Lotte Group chief has been confident that he can remain at the top of the group governance, saying the 28.1 per cent stake that Lotte Holdings holds in Kojunsha is not enough to have any effect on the management of Lotte Group Korea and Japan.

Separate from the ongoing family feud, Lotte Group promised to improve its governance structure in response to the FTC findings.

"The complication in the group's ownership structure is partially rooted in the corporate history," Lotte Group said in a press release on Monday. The 93-year-old founder created Lotte Group in Japan in 1948 and expanded into Korea in 1967.

"The group will push for the listing of Hotel Lotte on the main stock bourse (by May), as part of its efforts to improve transparency in governance,'' a group official said.

In the meantime, the disclosure of Lotte's ownership structure is expected to affect the supervision of conglomerates which run affiliates overseas. The FTC said it will improve the country's corporate reporting system to include information about overseas units that exert control over local companies.

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