Founder of South Korea's Lotte Group given 4 years' jail

Shin Kyuk-Ho, the founder of South Korea's fifth largest business conglomerate Lotte Group, arrives for his trial at Seoul Central District Court in Seoul on Dec 22, 2017. (Photo: Yonhap/AFP)

Shin Kyuk-Ho, 95, founded the group in Tokyo in 1948 and built into a sprawling giant that today has dozens of units focused on food, retail and hotels in South Korea and Japan.

It is the fifth biggest of the chaebol, the family-run conglomerates that have powered South Korea's growth into the world's 11th-largest economy, but are sometimes accused of murky business practices and overly-close ties with politicians.

Lotte has been a target of investigations since Shin's two sons made headlines with a bitter public fight for control of the group, featuring personal attacks in which they accused each other of mismanagement, personality flaws, and of manipulating their frail, aged father.

The founder, three of his children, and his mistress were all in the dock on multiple charges at the Seoul Central District Court.

Shin was accused of embezzling at least 128.6 billion won (US$119 million) from the firm to benefit his relatives.

He was found guilty and sentenced to four years in prison, although the court said it could not specify the amount embezzled and allowed him to remain free on health grounds pending an appeal - he has diseases of old age, including dementia.

"The accused Shin disposed of company assets as if they were his own in betrayal of his responsibility," said presiding judge Kim Sang-Dong.

"This case reveals how the founding families of chaebol attempt to obtain private gains from companies."

Shin shouted incoherently in court when the sentence was read out.

BEAUTY CONTEST

Prosecutors accused Shin and his son and successor as chairman Shin Dong-Bin of causing 77.8 billion won (US$72 million) in damages to the group by renting out Lotte Cinema concessions at discounted rates to the founder's eldest daughter and mistress.

The daughter was jailed for two years, while the mistress - a former model and actress 39 years Shin's junior, who came to his attention after winning a beauty pageant - was given a suspended sentence.

The court also found Shin and Dong-Bin guilty of enabling the mistress' daughter to receive 10 billion won (US$9.3 million) in salary from Lotte without doing any work.

But Lotte Group chairman Dong-Bin was given 20 months in prison - suspended for two years - on the grounds he was not in a position to refuse his father's orders, leaving him free to try and revive the conglomerate after steep losses in China.

"I apologise to the public," Dong-Bin said as he left court, without commenting further.

Shin Dong-Bin, the chairman of retail conglomerate Lotte Group and the son of group founder Shin Kyuk-Ho, arrives for his trial at Seoul Central District Court in Seoul on Dec 22, 2017. (Photo: Yonhap/AFP)

Another son, Dong-Joo - who lost the bitter succession battle when board members sided with his younger brother - was cleared of all offences.

SOCIAL RESPONSIBILITY

The ruling will come as a relief to the retail-to-chemicals group at the end of a difficult year during which it became the highest-profile corporate victim of a Beijing-Seoul spat over South Korea's installation of a US missile defence system.

South Korea's fifth-largest conglomerate said, "We respect the court's decision. Lotte Group executives and employees will further unite to contribute to economic progress and do our best to meet our social responsibility."

The prosecution did not have an immediate comment. Legal experts said the prosecution was likely to appeal.

Dong-Bin is on trial separately in connection with the corruption scandal that brought down President Park Geun-Hye, with prosecutors seeking a four-year sentence in that case.

In the meantime, Friday's ruling means Lotte, with 110.8 trillion won worth of assets, avoids a leadership vacuum for the time being as it navigates mounting China losses and an uncertain recovery.

Shunned in China, its key market, after it was pressed by Seoul to provide land for the THAAD missile defence system, Lotte's third-quarter China hypermarket sales were nearly wiped out to about US$278,000 from around US$264 million a year earlier.

Nearly all Lotte Mart stores in China have been shut for much of the year with local authorities citing fire safety issues, and the group has now put the business up for sale.

But the sale is likely to be delayed past the end-2017 deadline Lotte had sought, Lotte Corp official Choi Min-Ho said, without giving a reason.

BATTENING DOWN THE HATCHES

Lotte's businesses in South Korea, including its major duty-free operations, that had counted on big-spending Chinese tourists, remain under pressure amid curbs on Chinese tour groups travelling to the country.

South Korea's credit rating agencies have downgraded or cut their outlook for corporate bonds of the group's flagship retailer Lotte Shopping and Hotel Lotte, citing hurdles in improving their financial stability.

Lotte, which shelved plans for an estimated US$4.5 billion IPO of Hotel Lotte amid the investigation, is now battening down the hatches as a difficult year draws to an end.

Lotte Shopping has frozen wages for its department store business this year for the first time since 2009, three Lotte officials said this week, declining to be identified as the matter was sensitive.

While Lotte confirmed wages had been frozen, the retail-to-chemical conglomerate declined further comment.

However, one of the officials from the department store business said: "Wages have been frozen due to various factors, but the THAAD issue was one of them."