Loans of 45 billion won missing, Dongbang scandal escalating

A shock wave was sent through the nation, when a director of the Financial Supervisory Service was found to have received bribes from Chung Hyun-Jun, president of Korea Digital Line, a venture company.

The bribe case came to light Monday while the prosecution was questioning Chung on charges of taking out loans worth 67.7 billion won from savings & investment firms by illegal means.

The director is in charge of monitoring fair trades on the KOSDAQ market and preventing illegal loans, but he invested money in private funds and was even compensated for the financial losses he suffered.

The case showed that the phenomenon of moral hazard has spread to the FSS as well as among employees of financial institutions.

More than 45 billion won of the loans made by the savings & investment firms remains unaccounted for, suspicions are also being raised that about 1 billion won may have been handed over to FSS employees. Further fueling the suspicions, President Chung is now vowing that he will unveil the list of government officials and political figures involved in the case.

Particularly since Oct. 23, Lee Kyong-Ja (aged 56), a large shareholder of Dongbang Savings & Investment Co. (with a 11 percent stake), has emerged as a key figure and made the case even more complicated.

The FSS said that Chang Lae-Chan, former director of the non-bank inspection bureau, invested 100 million won in Pyongchang Information Technology stock but after the share price fell sharply, he received compensation for his losses from Dongbang. In addition, President Chung of Korea Digital Line is claiming that he gave 350 million won to Director Chang through Lee Kyong-Ja, vice president of Dongbang. Also, allegations have been made that 1 billion won was handed over to FSS employees through BW (bonds with warrants) in Yuil Semiconductor.

But Lee denied the allegation strongly, saying that she never did so and she does not even know any FSS employees.

By law, both FSS officials and employees are banned from making stock investments. But Director Chang invested as much as 100 million won in a private fund set up by President Chung for the purpose of boosting the share price of Pyongchang Information Technology.

Despite this, Lee Chung-Won, a director in charge of investigation of the FSS, refused to confirm that the agency turned in President Chung to the prosecution on charges of stock-price manipulation in accordance with the custom.

At the moment, it is assumed that President Chung, a venture businessman, and Lee, a private moneylender, had colluded in making money using the KOSDAQ market, but as the stock market crashed and they suffered big losses, an internal dispute erupted.

However, the scandal may spread further, given that a high-ranking FSS official was involved and Chung and Lee were reported to have boasted of having close connections with political figures including Chong Wa Dae.

Rumors have it that the FSS asked the prosecution to investigate President Chung on charges of manipulating the share price of KDL and the secret police of Chong Wa Dae also conducted an inspection on the case on Oct. 22. As the FSS is still reviewing the case, it will take time to get to the bottom of it. But chances are high that the incident could be a time bomb, hitting the political circle as hard as savings & investment firms and the KOSDAQ market.

The FSS is currently investigating the 67.7 billion won that Dongbang (65 billion won) and Daeshin (2.7 billion won) loaned to large shareholders including Chung Hyun-Joon. Of the loans, only 11.4 billion won has been confirmed so far. About this, Chung argues that he only borrowed 15 to 20 billion won from Lee and has nothing to do with loans of Dongbang. Lee also said that she does not know about any criminal acts committed by Chung and Yoo Jo-Woong of Dongbang. According to their arguments and the investigations results so far, Chung took 15 to 20 billion won of 67.7 billion but the remaining is still unaccounted for.

Hong Chan-Sun hcs@donga.com