A top executive of LG Group and the local chief of leading U.S. private equity fund Warburg Pincus received jail terms Friday for insider trading in shares of the conglomerate's credit card unit in 2003. Lee Dong-reoul, a managing director of LG Chemical, and Hwang Sung-jin, the South Korean chief of Warburg's Seoul office, were sentenced by a Seoul court to three and four years in prison, respectively, for violating South Korean law banning unfair stock trading.
The two were accused of using insider information on LG Card Co.'s imminent liquidity crisis at the time to secretly sell off stocks they managed for the family that owns the conglomerate and two Warburg Pincus-affiliated holding companies before the information spread to the local bourse.
Lee was in charge of managing stocks in the conglomerate owned by LG's owner family, while Hwang was an outside director of the credit card company at the time.
The stock price of the country's largest credit card issuer nosedived as much as 50 percent after rumors of a liquidity crisis began circulating. The company's largest shareholders, including Warburg, managed to escape huge losses as a result of the insider trading.
"Selling off stocks using undisclosed information undermines the transparency of the stock market and thus causes unpredicted losses to general shareholders and investors. The behavior poses a great danger to the market economy," Judge Kim Deuk-hwan said.
The court, however, did not immediately jail the two officials in order to give them time to prepare for their appeal. It was not immediately known whether they planned to appeal or not.
"We're disappointed with the trial court's verdict but continue to believe that the firm committed no wrongdoing. We complied with all relevant laws and regulations. We have no further comment at this time," Warburg's Seoul office said in a statement distributed to reporters.
Judge Kim also ordered the two Warburg affiliates to pay fines of 26.5 billion won each for its executive's involvement in the illegalities.
Choi Byung-min, chairman of Daehan Pulp and a son-in-law of the group's honorary chairman Koo Cha-kyung, was fined 22.5 billion won for escaping losses of 11.2 billion won after the insider trading.
LG Card returned to normal after two bailout packages from creditors in 2004. Its 14 creditors, who own a combined 82 percent stake in the former LG Group affiliate, now plan to sell a majority stake to Shinhan Financial Group, the country's second-largest financial services company, by March.
Seoul, Feb. 9 (Yonhap News)
Executives of LG Group, U.S. equity fund get jail terms for insider trading |
