Prosecutors Conduct Raids on Homeplus and MBK... Full-Scale Investigation into Allegations of Advance Knowledge of Credit Downgrade
Focusing Investigation on Whether Management Was Aware of the Credit Downgrade at the Time of Bond Issuance
(MHN Intern Reporter Yi Joo-hwan) Prosecutors have launched a compulsory investigation into the Homeplus senior management, including its major shareholder MBK Partners, over the Homeplus short-term bond scandal.
The Seoul Central District Prosecutors’ Office’s Anti-Corruption Investigation Division 3 (Chief Prosecutor Lee Seung-hak) sent prosecutors and investigators to conduct a search and seizure on the morning of the 28th at Homeplus’ headquarters in Gangseo-gu, Seoul, and at MBK Partners’ headquarters, a private equity fund (PEF) management firm and major shareholder, on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and violations of the Capital Markets Act.
It is reported that the residences of MBK Partners Chairman Kim Byung-joo, Vice Chairman and Homeplus Co-CEO Kim Kwang-il, and Homeplus CEO Cho Joo-yeon were also subject to the search and seizure.
Prosecutors previously received the "Homeplus and MBK Partners fraudulent transaction allegations" case from the Financial Services Commission under a fast-track (emergency action) procedure. The Anti-Corruption Investigation Division 3 of the Seoul Central District Prosecutors’ Office had already been investigating related complaints prior to the case being formally transferred.
The key focus of the investigation is whether the management of Homeplus and MBK Partners were aware of the credit rating downgrade in advance and concealed it while issuing a large volume of short-term bonds, resulting in investor losses. Homeplus’ credit rating was downgraded on February 28 from ‘A3’ to ‘A3-,’ just one step above junk status, and four days later, on March 4, the company filed for corporate rehabilitation at the Seoul Bankruptcy Court.
Financial authorities suspect that MBK Partners was already aware of the potential downgrade before the first notice from the credit rating agency on February 25, yet proceeded to recruit bond investors under false pretenses, and they have handed over related materials to prosecutors. The prosecution is focusing on pinpointing exactly when the management first became aware of the downgrade.
According to documents submitted by the Financial Supervisory Service to the National Assembly’s Political Affairs Committee, the total sales volume of commercial papers (CPs), short-term bonds, and credit card receivables-backed securities (ABSTBs) issued by Homeplus amounted to 589.9 billion KRW as of April 3. Of this, 197 billion KRW was sold to individual investors, and 311.9 billion KRW to general corporations.
Financial Supervisory Service Governor Lee Bok-hyun stated at a press conference on the 24th, "Homeplus and MBK claim they were unaware of the impending credit downgrade, but we have secured concrete evidence that they had recognized the downgrade in advance and had been planning for corporate rehabilitation for a considerable period."
Prosecutors also plan to investigate whether securities firms like Shin Young Securities, which sold Homeplus bonds, failed to properly disclose risks to investors, potentially constituting "misselling." Shin Young Securities had issued ABSTBs, asset-backed short-term bonds based on card receivables, just before Homeplus' credit rating downgrade.
Once the analysis of the seized materials is complete, prosecutors plan to summon MBK Chairman Kim Byung-joo, Vice Chairman Kim Kwang-il, CEO Cho Joo-yeon, and other Homeplus and MBK executives as suspects for questioning.
Photo=Yonhap News Agency