Sept. 2 (Bloomberg) -- Shinhan Financial Group Co. fell the most in seven months in Seoul trading after its banking unit asked prosecutors to investigate Shinhan Financial President Shin Sang Hoon for alleged embezzlement and breach of duty.
Shinhan Bank said Shin may have committed breach of duty by arranging 95 billion won ($80 million) of loans to relatives, according to an e-mailed statement from the company today. Phone calls by Bloomberg News to Shin’s office were answered by his secretary, who said the executive was unavailable to comment.
The announcement came less than a month after South Korea’s Financial Supervisory Service asked the company to provide data to help judge whether Shinhan Financial Chairman Ra Eung Chan broke the law by opening an account in another person’s name. Shinhan Financial shares lost 4.9 percent, the biggest drop since Feb. 5.
“Concerns about a lax internal control system and a potential management vacuum are hitting the stock hard today,” said Im Il Sung, a banking analyst at Shinyong Securities Co. in Seoul, who rates Shinhan “buy.”
Shinhan said it asked also prosecutors to investigate Shin and six other Shinhan employees for allegedly embezzling 1.5 billion won. Directors of Shinhan Financial Group, South Korea’s largest financial company by market value, will hold a meeting to decide whether to fire Shin, according to the release.
Life in Prison
Officials at the Supreme Prosecutors’ Office in Seoul didn’t immediately respond to calls seeking comment. Under South Korean law, embezzlement and breach of duty related to a convicted person’s job carry a maximum penalty of life in prison, according to the Ministry of Government Legislation’s website.
Shin, 62, was head of Shinhan Bank between April 2006 and February 2009 before assuming his current position.
The allegations against Shin come as financial regulators crack down on lax risk management among banks. Hwang Young Key, the former chief executive officer of KB Financial Group Inc., resigned last year after regulators barred him from seeking a second term, citing investment losses at his former employer Woori Finance Holdings Co.
The Financial Supervisory Service last month handed a similar penalty to former Kookmin Bank CEO Kang Chung Won because of investments made under his watch.