Hyundai Motor Chairman Chung Ordered to Pay Automaker $66 Million Damages
Hyundai Motor Co. Chairman Chung Mong Koo was ordered by a court to pay the company 74.6 billion won ($66 million) for unfairly helping affiliates at the expense of the automaker he’s led for a decade.
The Seoul Central District Court dismissed a 1 trillion won claim by minority shareholders in Hyundai Motor that alleged billionaire Chung Mong Koo, 72, and his son Chung Eui Sun inappropriately took control of logistics affiliate Glovis Co., depriving the automaker of potential profits.
The ruling, ordering Chung Mong Koo to pay Hyundai, may encourage more lawsuits by minority shareholders in South Korea, where four of the five biggest companies by market value are controlled by the founding families, said Park Yoon Bae, president of Seoul Invest, a private-equity firm.
“We need to end the unfair practice at conglomerates of managerial control and fortunes being kept in the family,” said Park, whose firm buys small stakes in large South Korean companies and agitates for change.
Chung Mong Koo’s lawyers at Barun Law in Seoul weren’t immediately available to comment on whether he will appeal the decision.
Chung Mong Koo, whose holdings in Hyundai, its units and Glovis are valued at $5.7 billion, is set to earn 5.3 billion won in dividend payments from his 20 percent stake in Glovis this year.
Shares of Hyundai Motor, South Korea’s biggest automaker, advanced 2.3 percent to close at 175,000 won in Seoul while Glovis was unchanged at 139,500 won. The benchmark Kospi index gained 0.7 percent.
“I don’t think any result in this suit could have a big impact on Hyundai Motor’s financial value and it’s unlikely to have a major effect on its stock,” Lee Myung Hoon, a Seoul- based analyst at E*Trade Securities Co., said in a phone interview before the ruling.
Judge Yeo Hoon Koo said Chung had breached his duty to Hyundai Motor, along with former vice chairman Kim Dong Jin, who was ordered to pay 8 billion won. Chung is jointly liable for this sum.
The shareholders, including the group Solidarity for Economic Reform, filed a civil suit against Chung and Kim in May 2008 alleging that: Hyundai Mobis was allowed to charge Hyundai Motor too much for parts; Glovis received inflated shipping fees through orders from Hyundai Motor and its affiliates; and Hyundai Motor was used to help pay Kia’s debts to Hyundai Mobis.
A group of minority shareholders may appeal after the court rejected their claim that the Chungs inappropriately seized control of Glovis.
“We are very disappointed,” said Kim Sang Jo, Solidarity for Economic Reform’s executive director. “We need to hear higher courts’ juridical judgment on this issue.”
Kim Bong Kyung, a vice president at Hyundai Motor Group, declined to comment on the ruling today by phone.
Chung was convicted in June 2008 of embezzling almost 70 billion won from Hyundai Motor, Kia and other affiliates, and of breach of trust, including selling securities in Hyundai Motor affiliates to his son at below-market prices.
Chung Eui Sun wasn’t indicted. His father, who received a suspended jail sentence, was pardoned in August 2008 by President Lee Myung Bak.
Chung Eui Sun was promoted to vice chairman in 2009 and appointed to the company’s board, moving a step closer to succeeding his father.
The case is: Choi Han Soo (plus 14 others) v. Chung Mong Koo (plus 1 another) 2008 Gahap 47881 Seoul Central District Court (Seoul).
To contact the reporter on this story: Sookyung Seo in Seoul at firstname.lastname@example.org