Lotte boss appears for questioning in S Korea corporate probe

South Korean prosecutors on Tuesday questioned Lotte Group Chairman Shin Dong-bin, the most senior executive to face interrogation as part of a sweeping criminal probe into the country's fifth-largest conglomerate.

Investigators will ask Shin about suspected embezzlement and breach of trust as well as other suspected corporate crimes at Lotte Group, a prosecution source with direct knowledge of the matter told Reuters on Monday.

As a boss at the time of the alleged crimes, Shin, 61, is expected to be a key witness in the investigation which has already seen dozens of Lotte Group officials called in for questioning and company offices raided.

"I am sorry for causing concerns. I will sincerely co-operate with the prosecutors' investigation," Shin told reporters before attending a closed questioning session at the Seoul Central District Prosecutors' Office.

The probe, which began in June, has already scuppered Hotel Lotte's planned US$4.5 billion (S$6.3 billion) IPO, hampered potential M&A deals and served as the backdrop of the apparent suicide of one of the group's top executives last month.

Lotte Group struggles to keep it in the family

  • With bitterly feuding siblings, attempted boardroom coups and an act of corporate patricide, the family squabble currently engulfing one of Korea's largest conglomerates makes for compelling drama.
  • And it is very much being played to an audience, with the three main protagonists issuing almost daily threats and accusations on television - sometimes of a deeply personal nature.
  • The 92-year-old founder of the Seoul-based Lotte Group and his two sons have been tearing chunks out of each other with little or no apparent concern for the impact on the country's largest retail giant.
  • Squabbles for control of South Korea's family-run conglomerates, known as "chaebol", have long been staple plotline fare for the country's popular K-dramas, but the real-life Lotte dispute is setting new standards for in-fighting and intrigue.
  • At stake in the Lotte feud is control of a sprawling conglomerate with 80 units across Korea - spanning retail, amusement parks, hotels and chemicals - and total combined assets of around S$124 billion.
  • The company was founded in Japan in 1948 by South Korean-born Shin Kyuk-Ho and grew from a seller of chewing gum to become a confectionary giant.
  • It expanded to South Korea where its operations now dwarf the Japanese side of the business in terms of revenue. But the key to control of the group still lies with the Japan-based Lotte Holdings Co.
  • At the beginning of last week, Shin and his eldest son, Shin Dong-Joo, flew to Tokyo and sought to dismiss a group of senior Lotte Holdings executive board members, including the CEO and Shin's younger son, Shin Dong-Bin.
  • But Dong-Bin fought back and, a day later, the board not only nullified the dismissals but also removed the father as co-CEO.
  • In a statement apparently dictated by Dong-Bin, the Lotte Group suggested that the eldest son had taken advantage of his father's frailty and advancing years to try and stage a boardroom coup.
  • He took the chairman "who is aged and has difficulty in making judgements, to Japan and pushed him into making the verbal dismissal announcement," the statement said.
  • It is unclear exactly where the loyalties of the patriarch lies when it comes to his two sons.
  • After Dong-Joo was stripped of key positions with Lotte's Japan-based affiliates back in January and Dong-Bin was appointed Lotte Holdings CEO last month, it was widely assumed that the younger son was the chosen successor.
  • But in a halting statement read to Korean broadcaster SBS on Sunday, Shin Kyuk-Ho insisted he had never appointed his younger son as the Lotte heir, and added that he would never forgive being ousted from the holding company.
  • The dispute should come to a head at a Lotte Holdings shareholder meeting expected to be held in Tokyo this week, at which the eldest son has said he will call for the sacking of the entire executive board.
  • Both sons claim they have the shareholder backing to swing the vote their way.
  • The situation is further complicated by the byzantine structure of the Lotte Group, with myriad circular shareholdings that make it difficult to decipher who exactly owns and controls what.
  • "That is a feature of many chaebols, but the Lotte Group's cross-holdings dwarf the others in their number and complexity," said CGCG's Kim.
  • As far as decent corporate governance goes, the family really ought to sort things out themselves first and then win shareholder approval for whatever they decide," Kim said.
  • "But in this case, it looks like they have just skipped both steps. They failed to work things out in the family and then completely ignored shareholders as they set about ordering dismissals," he added.
  • The Lotte drama comes at a time when the issue of dynastic corporate succession is very much in the South Korean news.
  • Last month, the country's largest and wealthiest chaebol, Samsung, barely scraped through a shareholder vote on the proposed merger of two affiliates, aimed at boosting the founding Lee family's control over the conglomerate ahead of a generational power transfer.

Prosecutors also questioned Shin's father and Lotte Group founder, Shin Kyuk-ho, as well as elder brother Shin Dong-joo earlier this month.

As chairman Shin is currently in control of the group which has 103.3 trillion won (S$125.8 billion) in assets as of April. Shin has been in a dispute with his elder brother over control of the group since last year.

The prosecution source, who declined to be identified as the probe is ongoing, said the investigation would likely reach a conclusion by early October.