Slush Fund Follies

28 April 2006



Prosecutors Seek Arrest of Hyundai Chairman

Hyundai, which was supposed to release its financial results for the first quarter yesterday, has delayed that event. Usually, there is nothing more important to investors, staff and customers than the earnings. These aren’t usual times at Hyundai. South Korean prosecutors are trying to arrest the company’s chairman, Chung Mong-koo, for embezzlement.

According to press reports and statements from South Korean authorities, the investigation into all of this started in March. Prosecutors have raided not only Hyundai Automotive Group’s offices but also those of three companies affiliated with it: Kia, Glovis Co. (a logistics company) and Hyundai Autonet, which makes car parts. They have, apparently, turned up quite a bit of evidence that there was something rotten in the state of Hyundai.

The as-yet unproven allegation is pretty straightforward. Hyundai alleged set up a slush fund and funneled cash through lobbyists to officials in the South Korean government. This is illegal in South Korea (and other sensibly governed nations). Two lobbyists have been arrested in conjunction with the investigation. Chairman Chung (forgive the Maoist tone) spent 15 hours at the Supreme Prosecutors’ Office in Seoul on Monday. His son, who may or may not be involved, was there last week for 18 hours.

Hyundai spokesman Jake Jang broke every rule of investor relations by telling the world, “It is very shocking. Hyundai executives are all in a panic. The absence of Chairman Chung is enormous and its ramifications are beyond description.” Note to JJ: the idea is not to upset shareholders.

Where all of this leads is unclear, but last week, Hyundai announced that the Chung family is giving $1.1 billion of their personal assets to South Korea and apologies for causing worry. The cultural context is such that one should not presume guilt based on this donation. All the same, it looks like someone has a guilty conscience.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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