FTC uncovers unfair inside trading at five public corporations

The Fair Trade Commission (FTC) imposed 39.5 billion won in penalties on five public corporations, Korea Telecom (KT), Korea Electric Power Corp. (KEPCO), Pohang Iron and Steel Co. (POSCO), Kookmin Bank, and H&CB that engaged in unfair inside trading practices that yielded 938.2 billion won. The five public corporations passed on a combined total of 69.6 billion won of their illegal gains to their subsidiaries, including 43.9 billion won for KT.

In announcing the results of the second-phase of investigations into public corporations Thursday, the FTC placed a correction order and imposed penalties on violators. The FTC ordered KT, KEPCO and POSCO to public admit their wrongdoing in local newspapers.

According to the investigation results, KT granted 43.9 billion won in special favors to its three 100% subsidiaries KT Hi-phone, KT Realty Development and Management Co., and Korea Informatics Telesis Inc., and engaged in 438.9 billion won worth of transactions with them.

While engaging in 158.2 billion own worth of trade with its two subsidiaries Korea Plant Service & Engineering and Korea District Heating Corp., KEPCO turned over 16.1 billion won to them by overstating labor costs or selling goods at extremely low prices.

POSCO also extended 7.3 billion won in illegal assistance to POSENERGY, Seungkwang (golf course management company), and POSCON by overpaying for labor, signing private contracts, or undertaking unsecured convertible bonds at low interest rates.

H&CB extended 500 million won in special treatment to H&CB Industries by applying low interest rates in the process of trading 209.5 billion won worth of corporate bills floated by the subsidiary on 16 separate occasions. Kookmin Bank granted special favors amounting to 1.8 billion won to Kookmin Lease, which recorded losses for three consecutive years, by extending call loans at low interest rates or purchasing corporate bonds at exorbitant prices.

Lee Han-Eok, director-general of the FTC investigation bureau, said that public corporations supported their affiliates using methods similar to those employed by top 30 groups, such as purchasing corporate bills and unsecured conversion bonds at high prices.

Choi Young-Hae moneychoi@donga.com