SOUTH KOREA - The prosecution raided the residence of Tong Yang Group chairman Hyun Jae-hyun and its key affiliates on Tuesday in a widening probe into their alleged involvement in massive investment fraud.
Investigators searched and seized computer hard drives, accounting records and internal corporate reports at 10 Tong Yang units including Tong Yang Securities, Tong Yang Networks, Tong Yang Leisure and Tong Yang International.
Last week, Seoul Central District Prosecutors' Office launched the investigation into the group's chairman, who is suspected of fraudulently issuing commercial paper worth 160 billion won (S$187 million).
The probe comes after a local civic group and the labour union at the group separately filed complaints against Hyun and the group's senior executives including Chung Jin-seok, president of Tong Yang Securities. They claimed that Hyun and his aides issued some 156.9 billion won worth of asset-backed commercial papers, a type of short-term debt, in July and September, even though they were aware the group was about to collapse and had lost its ability to repay its debt.
Nearly two-thirds, or 100 billion won, worth of ABCPs, were issued with holding assets of Tong Yang Cement and Energy Co. in pledge and sold to hundreds of investors in September, even two weeks before the group requested the court's protection of its three units on Sept 30.
Currently, five affiliates, including its holding firm Tong Yang Inc., have been placed under court receivership after the group defaulted on some 110 billion won worth of debt.
The Citizens' Coalition for Economic Justice, a consumer advocacy group, claimed that investors were expected to suffer huge losses.
"Commercial paper they had invested in Tong Yang will become worthless with (the affiliates) being placed under the court's protection," the group said.
The labour union at Tong Yang Securities also said that Hyun cheated his employees and investors by issuing massive amounts of debt and caused huge losses to both of them.
About 46,000 retail investors, who invested in CPs and bonds issued by the firms, are assumed to have suffered collective losses of an estimated 2.3 trillion won, according to reports.
The prosecution said it had already questioned CCEJ and the labour group on their reasons of filing the complaints and would summon Tong Yang officials involved in the case soon.
The prosecution has been investigating the case with data and documents on Tong Yang submitted by the country's financial regulator.
The Financial Supervisory Service has begun a separate probe into Tong Yang's key financial units, including Tong Yang Securities Co., for alleged unfair trading, and the owner family for breach of duty. The financial regulator has not lodged a complaint against Tong Yang Securities with the prosecution yet.
In a related move, the FSS said Tuesday afternoon that it would take individual complaints from Tong Yang Group investors as a collective request for investigation of the brokerage arm of Tong Yang. The FSS will soon inspect the firm to determine whether it sold fraudulent corporate bills and inflicted huge losses on its investors. The financial regulator will also request the Korea Institute of Certified Public Accountants to analyse financial records of Tong Yang Financial Services Corp. and to examine whether it violated international accounting rules, officials said.