Lotte Family Denies Graft Accusations in Rare Court Reunion

Updated on
  • Confused patriarch, 94, says he can’t comprehend trial
  • Verdict could possibly affect leadership at $81 billion group

Lotte Group Founder on Trial

Lotte Group founder Shin Kyuk-ho and his children denied corruption charges filed against them by South Korean prosecutors as a court in Seoul kicked off criminal proceedings against one of the country’s most powerful corporate families.

The Lotte clan gathered on Monday to defend themselves against accusations ranging from embezzlement to fiduciary breaches amounting to about 280 billion won ($249 million). The 94-year-old patriarch, visibly confused, asked the court what the trial was about.

“This is a company I own,” the wheelchair-bound Shin told the judge before he was allowed to leave the room midway. “But who made the indictments? Why?” A previous judge had found him to have “limited” mental abilities and ordered a guardian for him.

The Shin family trial is unfolding amid unprecedented political and corporate turmoil in South Korea, where an unrelated influence-peddling scandal resulted in the impeachment of President Park Geun-hye this month and shook up some conglomerates including the Samsung Group, the country’s biggest. The outcome of the Lotte trial may tip the scale in a sibling rivalry at the sprawling chaebol that earned $81 billion in revenue last year.

Shin, two sons and a daughter faced the court to answer questions about whether they were involved in white-collar crime at the conglomerate that operates hotels, theme parks, duty-free shops, chemicals and owns assets including Guylian Belgian chocolates and New York’s Palace Hotel.

Read more on the billionaire Shin’s corporate sibling rivalry here.

After senior Shin ceded control of the business empire he built, his two sons have been embroiled in a power struggle, while daughter Shin Young-ja was sentenced to three years in prison in January on separate charges of embezzlement and breach of trust. Chairman Shin Dong-bin, 62, had rallied executives against brother Shin Dong-joo, 63, to consolidate control of the flagship company based in Japan. The older brother told Bloomberg News late last year that he’s confident he would win control of the group and clear his name in court.

The two feuding brothers barely made any eye contact in the court room though they were sitting only a few feet apart.

The court set March 27 for the next hearing in the trial that may last months before an initial verdict is reached. Lotte executives are set to appear next week.

Raise Voice

“If Shin Dong-bin is convicted, it may be a chance for Shin Dong-joo to raise his voice over his management rights,” said Chung Sun-sup, who runs corporate researcher Chaebul.com, a website that tracks news on South Korea’s dominant conglomerates, also know as chaebol. A change in leadership of Lotte could potentially come from Tokyo-based Lotte Holdings Co., which controls the conglomerate’s scores of businesses and has so far backed Shin Dong-bin, Chung said.

Also facing trial with Shin scions is Seo Mi-kyung, the founder’s common-law wife, who has been living in Japan. She has also denied wrongdoing.

The swirl of allegations and boardroom maneuvering by the siblings have sidetracked the Lotte Group, delaying a multi-billion-dollar share sale by a hotel unit and prompting the withdrawal of a bid for chemicals-maker Axiall Corp.

Shin Dong-bin has also had to answer allegations from parliament in a separate case that Lotte gave bribes to foundations controlled by former President Park’s confidante Choi Soon-sil, an accusation the Lotte Group denies.

Park Questioning

Park herself, having lost her presidential immunity after the impeachment, is this week set to answer prosecutors investigating allegations she pressured top business executives to donate tens of millions of dollars to the foundations run by Choi in return for government favors. That scandal has led to the indictment and ongoing trial of Jay Y. Lee, Samsung Electronics Co.’s vice chairman and presumed heir to the Samsung Group.

Lotte’s woes aren’t just confined to the graft trial.

More recently, the group bore the brunt of retaliation from China over the conglomerate’s decision to provide some land for U.S. deployment of a missile defense system in South Korea. Chinese authorities have suspended some Lotte Mart stores in the mainland because of alleged fire-safety violations, while a venture with Hershey Co. has been told by Chinese authorities to stop production for a month.

“Being at the center of this crisis, Lotte is likely to have difficulties in growing its business in Korea and overseas for a while,” said Chung of Chaebul.com.

Read this QuickTake to find out what Thaad is, and why it so bothers China.

In Monday’s trial, Shin Kyuk-ho and Shin Young-ja faced charges of tax evasion, embezzlement and breach of fiduciary duty, while Shin Dong-bin is under indictment for embezzlement and fiduciary breach. Shin Dong-joo faces one count of embezzlement.

For Shin Dong-joo, the crises at Lotte are representative of what he says are management’s missteps. His message for his estranged brother:

“You’d better apologize to my father and come back to Shin family,’’ Dong-joo said in the interview last year. “As a family, we should be united.’’

    Quotes from this Article
    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE