Faked Deposit of 1.8 Trillion won Worth of Capital Increase

8,700 companies were found to have caused harm to its investors by means of making faked deposits of the capital and then withdrawal thereof ("faked depositing"), said the prosecution.

The companies have reportedly made 1.8 trillion won(approximately $1.5 billion) worth of faked depositing.

Included among the corporations accused of faked depositing are 15 companies traded on the stock exchange or KOSDAK. Therefore, it will have a huge impact on the stock market as a whole.

Criminal Division 9 of the Seoul District Public Prosecutors` Office announced yesterday that it would investigate 20 companies first. Each of these 20 companies, according to the DA`s office, has more than 3 billion won in capital. Therefore, 15 listed companies including The Able Inc. will face the investigation

When establishing companies or raising capital, CEOs of these companies borrowed money from the "M&A-only private funds" or private moneylenders, and deposited it into the companies` accounts. Based on the faked-up balance, they issued additional shares. Then, they withdrew the money and paid back the loans.

Less than 100 investors set up a private fund in order to make intensive investments into a particular item or company.

When the faked depositing happens, a company has an ample capital on the record. In fact, the company`s safe is empty. Therefore, if an investor makes an investment relying on the capital increase recorded on the book, he/she is likely to end up with a loss later.

In addition, some CEOs have stole away the money general investors have invested through capital raising in order to pay back the loads from the funds and private lenders, said the DA`s office.

According to the DA`s office, Lee Gyu-ho (39), CEO of The Able and former CEO Kim In-sun borrowed 2.9 billion won from an M&A-only private fund, and raised the capital. Then, they embezzled 3 billion won that was invested by general investors, and used the money to make payments for the principle and interest to the private fund. Thus, Lee and Kim were arrested and indicted for embezzlement.

Lee and Kim were also suspected of faking up the financial report in an effort to cover up the embezzled 3 billion won as spent on other items.

The DA`s office also suspects that, without securing any collateral, Lee made an unauthorized loan of 4.5 billion won out of The Able`s safe to a computer company he owns. Then, he acquired Dream One, which is traded on the KOSDAK.

Originally, the prosecution was conducting a probe into Ban Jae-bong (58) accused and indicted of making illegal loans to stock-price manipulators. In the process, the prosecution noticed 8,700 companies have borrowed money from Ban for faked depositing purposes.

Myoung-Gun Lee gun43@donga.com