[비즈한국] As Sung Ki-hak, Chairman of Youngone Group099750, faces a prosecution referral for allegedly omitting 82 subsidiaries, eyes are on the level of potential legal action. Unlike past cases involving the omission of just one or two disguised affiliates that ended in fines, this incident involves assets valued at approximately 3 trillion KRW. Furthermore, with allegations arising that management succession was conducted within a regulatory blind spot, industry observers suggest the punishment could surpass previous precedents.
82 companies omitted including family businesses, keeping reported assets under 5 trillion KRW
Chairman Sung Ki-hak of Youngone Group, a global outdoor OEM (Original Equipment Manufacturer), is under investigation by the prosecution following an FTC referral. On February 23, the FTC stated it confirmed that Chairman Sung omitted 82 subsidiaries while submitting documents for the designation of a corporate group subject to disclosure requirements.
Investigation results indicate that a total of 203 companies were omitted over a three-year period from 2021 to 2023. The asset value of these unreported companies during this period reached approximately 3.24 trillion KRW. The FTC explained that while Youngone Group’s total assets actually exceeded 5 trillion KRW, the omission of these subsidiaries led to the group's reported assets appearing to be under 5 trillion KRW, thereby allowing it to avoid designation as a corporate group subject to disclosure.
Notably, the FTC believes Chairman Sung intentionally excluded certain companies during the document submission process. An FTC official pointed out, "The omitted list included numerous companies that he could not have possibly failed to recognize as affiliates, such as those owned by himself, his daughter, his younger brother, and his nephews."
This case is reported to have the largest scale of subsidiary omission among all false filing cases uncovered by the FTC to date. It is also considered the longest period of avoidance of designation. Consequently, the industry expects the level of punishment for Chairman Sung to significantly exceed past precedents.
The Fair Trade Act stipulates that submitting false materials related to the designation of a large business group is punishable by up to two years in prison or a fine of up to 150 million KRW. Past cases where the FTC referred heads of groups for false filing have mostly concluded with summary indictments and subsequent summary orders (fines). A summary indictment is a procedure where the prosecution, having determined the case warrants only a fine, requests a penalty through written review without a formal trial.
Analysts suggest that past punishments were light because the scale of omissions was limited. Since the number of omitted subsidiaries was small and the asset value did not directly affect the designation as a corporate group, some cases were dismissed as simple errors or administrative negligence.
In 2019, the late Samsung Electronics005930 Chairman Lee Kun-hee was fined 100 million KRW for omitting two disguised subsidiaries. KCC002380 Chairman Chung Mong-jin also received a 100 million KRW summary order in 2021 for omitting 10 relative-owned companies.
Even in cases where the prosecution moved to a formal trial due to the severity of the matter, or the court opened a trial by its own authority, the results did not change significantly. Kim Sang-yeol, Chairman of Hoban Construction, was put on trial for omitting 13 subsidiaries and was sentenced to a 150 million KRW fine in 2022.
However, some cases have seen relatively higher fines. Former Taekwang Group Chairman Lee Ho-jin was put on trial for reporting false information regarding subsidiary shares held under the names of relatives or employees. Because multiple Fair Trade Act violations were recognized, the court sentenced him to a 300 million KRW fine in 2021.
Whether it was an administrative error or related to succession will likely determine the punishment level
The Youngone Group case is viewed as being on a different scale compared to previous instances, both in the number of omitted subsidiaries and total asset value. Unlike past cases involving around 10 companies that could be interpreted as administrative errors, this incident involves dozens of companies omitted over an extended period. Industry experts suggest the possibility that punishment for Chairman Sung could be higher than past precedents cannot be excluded.
The changing judicial environment is also considered a variable. Recently, the Board of Audit and Inspection (BAI) pointed out in a regular audit of the FTC that the effectiveness of sanctions is low, as many false filing cases result only in warnings. Consequently, the BAI notified the FTC chairperson to establish consistent standards for sanctions to prevent repeat offenses. As this is the first major false filing case to emerge since this audit, observers are keen to see how it will influence the judgment of investigative authorities.
Another issue is the connection to the management succession process. Vice Chairwoman Sung Rae-eun, Chairman Sung's second daughter, effectively completed the succession in 2023 after receiving shares from her father. The FTC is focusing on the fact that this process occurred while the group was not designated as a large business group.
Once designated, regulations regarding the exploitation of private interests and obligations to disclose large-scale internal transactions apply. There is suspicion that the succession was conducted while avoiding these regulations because the designation had not yet been made. This leads to speculation that the omission was not a simple administrative error, but potentially a deliberate act of concealment related to avoiding regulations during the succession.
In response, Youngone Trading stated, "This matter occurred due to errors during the working-level process and there was absolutely no intentional concealment or other motives. We voluntarily reported the issue as soon as we recognized it and have improved our internal processes to prevent recurrence." However, they did not provide specific answers regarding whether the prosecution investigation is underway or future procedures.