[비즈한국] Whether Michael Kim, the influential chairman of the private equity firm (PEF) MBK Partners, will be arrested is set to be decided on the 13th. On the 7th, the Seoul Central District Prosecutors' Office Anti-Corruption Investigation Department 3 (Chief Prosecutor Lee Jun-hee) requested arrest warrants for four key executives, including Chairman Michael Kim and Vice Chairman Kim Gwang-il (CEO of Homeplus), on charges of fraud under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes and violations of the Capital Markets Act.
The decision to request warrants for multiple key executives simultaneously is being interpreted as the prosecution's final move in the investigation, signaling that they intend to seek warrants only once. In particular, the analysis suggests that by requesting warrants for all at once rather than by rank or position, the prosecution acknowledges that there is significant 'room for legal dispute.'
Warrant Request Includes Accounting Fraud Charges
The prosecution applied charges of fraud under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes and violations of the Capital Markets Act to the four individuals, including Chairman Michael Kim. The prosecution contends that Homeplus and its majority shareholder, the PEF manager MBK, caused damages to suppliers and investors by issuing and selling 82 billion won in short-term bonds last February, despite knowing that their credit rating would be downgraded. They also argue that failing to fully disclose the company's financial status and the possibility of credit rating changes to investors while selling financial products constitutes a violation of the Capital Markets Act.
In particular, it is reported that beyond the existing fraudulent trading charges, they have added charges of approximately 1 trillion won in accounting fraud, applying the crime of fraudulent rehabilitation under the Debtor Rehabilitation and Bankruptcy Act. The prosecution believes they distorted financial statements and inflated asset values by treating Homeplus's liabilities as capital. Just before filing for corporate rehabilitation, MBK changed the obligor of Redeemable Convertible Preference Shares (RCPS), which amounted to 1.1 trillion won, from the existing special purpose company (SPC), Korea Retail Investment, to Homeplus; the prosecution views the resulting treatment of liabilities as capital as problematic.
Fraudulent rehabilitation occurs when books or financial statements submitted to the court during rehabilitation proceedings are falsified or manipulated to secure a rehabilitation commencement order, and if convicted, it carries a penalty of up to 10 years in prison or a fine of up to 100 million won. However, this specific charge was not applied to MBK Chairman Michael Kim.
'Four People' at Once, 'Room for Dispute'
Legal experts have mixed interpretations regarding the prosecution placing four key executives on the warrant review stand simultaneously. While requesting warrants for four or more senior executives in a single case is usually read as an exceptional 'strong move' or a 'last stand,' some argue it is a strategy used when the attribution of responsibility is unclear.
A lawyer and former prosecutor with extensive experience in corporate investigations noted, "Requesting warrants at the end of an investigation for four people, including those at the peak, without interim warrant requests, suggests an intent to bundle them all as accomplices." However, the lawyer added, "The court will inevitably have to strictly examine the level of individual involvement, and because the attribution of responsibility becomes ambiguous in that process, there will inevitably be cases where warrants are dismissed."
In fact, there are numerous cases in past large-scale economic crime investigations where the prosecution suffered setbacks after requesting warrants for multiple people. This was the case with the 'mass' warrant requests for high-ranking Oxy officials during the 'Humidifier Disinfectant Case,' and more recently, in the 'SPC Group Unfair Support Allegations' investigation, the prosecution targeted several executives simultaneously, but the court distinguished between the ringleaders and participants and dismissed some warrants.
Accounting Fraud? Legal Circles Say 'Large Room for Dispute'
There is also significant chatter regarding the prosecution's application of the '1 trillion won accounting fraud' charge to Chairman Michael Kim. This is because recent accounting fraud cases often ended in a 'judiciary defeat for the prosecution.' The most representative example is the Samsung BioLogics (Samsung Bio) accounting fraud case, where the final acquittal was confirmed by the Supreme Court. At the time, the prosecution argued that Samsung Bio inflated its value by 4.5 trillion won through changes in control of a subsidiary, but the court evaluated it as 'a part of reasonable management judgment made in consultation with external experts.'
MBK's method of classifying liabilities as capital or evaluating asset value could also be legally interpreted as 'possible under International Financial Reporting Standards (IFRS),' similar to the Samsung Bio case. A lawyer who is a former chief prosecutor tipped, "For the prosecution to prove as a 'crime' an area where even experts hold differing opinions, they must prove, beyond mere numerical distortion, the 'intent to deceive' by management. The fact that they requested warrants for four executives at the very end of the investigation conversely means it is difficult to pin clear 'malice' on one specific individual."
Politics and Civic Groups Are 'Minor Variables'
The legal community believes the voices of politicians and civic groups could be a minor variable. Both the Democratic Party and the People Power Party are pressuring the court to arrest them, and Homeplus labor unions and civic groups are also calling for strict punishment, stating, "The greed of predatory private equity funds has ruined the company."
Because of this, some observe that the case may be classified as a 'sensitive case' by the judge in charge of warrants, which could influence the results. A judge who served in warrant duties remarked, "While political pressure does not influence the judgment itself, there is a tendency to look more closely at cases that are sensitive enough to make headlines. Since this case has sparked social outrage, whether the suspects, including Chairman Michael Kim, present responsible solutions will also have an impact."
Although the prosecution has applied strict legal standards, including the astronomical 1 trillion won accounting fraud charge, fraud under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes, and violations of the Capital Markets Act, some analyze that if even one warrant is dismissed, it could be seen as a 'failed investigation.'
The aforementioned judge explained, "Since they requested warrants for four people at once, it could take a significant amount of time for the results to come out, depending on which are granted and which are dismissed," adding, "Since warrant issuance and dismissal decisions occur during deliberation, if all are dismissed, wouldn't it be possible to interpret the prosecution's investigation as 'unreasonable'?"