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Daewoo Group Ordered to Compensate for Investor Losses

Posted May. 30, 2004 22:44,   


Sentence has been ordered former Daewoo Group executives to compensate an individual stock investor for damages caused by accounting fraud.

The constitutional court had rejected the decision about unconstitutionality related to the Daewoo firms due to the manipulation of account books last December. This ruling is expected to open the door for scores of similar lawsuits by investors who suffered from financial losses from their investment in Daewoo firms.

The Civil Court of the Seoul Central District Court (Presiding Judge Park Jung-heon) ordered Daewoo Heavy Industries and Machinery and three former Daewoo officials, including former Daewoo chairman Kim Woo-choong, to pay 97 million won in compensation to a stock investor identified by his surname Lee on May 30.

The court said that the executives, including former Daewoo chairman Kim Woo-choong, are legally responsible for Lee`s losses as they rigged account books in 1997 and 1998, and fabricated financial statements by cooking the company`s net profit records.

However, the court stated that the plaintiff is also partly to blame for his losses, as he blindly bought Daewoo stocks even though there were widespread concerns about the firm`s financial stability. Therefore, the responsibility of the executives and former Daewoo chairman Kim Woo-choong was limited to 40 percent.

Lee had filed a compensation suit against Daewoo executives in 1999 after Daewoo Heavy Industries and Machinery stocks declined sharply following the outbreak of the group`s massive accounting scandal around July of that year. Lee demanded 720 million won in compensation for financial damages, claiming that he bought Daewoo stocks because of the group`s financial irregularities.

Eleven former Daewoo employees were tried in an appeal`s court for doctoring company account books. Most of them were released on probation, but seven of them were fined 24.3558 trillion won for their violation of foreign currency law and sneaking company funds overseas. They are currently waiting for a final decision by the Supreme Court.

Tae-Hoon Lee jefflee@donga.com