#95 The Beginning of the War of Money. Rumors had circulated before that another power had interfered in the dismantling of Jungwoo Group. It was inevitable, as the affiliates of Jungwoo Group, which had been torn to shreds and sold off to other conglomerates and foreign capital, continued to grow without issue.
“What on earth is the reason for Chairman Park's arrest by the prosecution? Get the Prosecutor General in here at once.”
“Yes, Mr. President.”
President Kim Hak-kwon, having heard reports not just of the various corruption news about Jungwoo Group that covered the major daily newspapers since morning, but also that the chairman of a major conglomerate had been emergently arrested rather than just summoned by the prosecution, was busy trying to grasp the situation.
A short while later, at President Kim Hak-kwon's summons, Prosecutor General Yoon Chang-ho entered the Blue House.
“Welcome, Prosecutor General Yoon.”
“You summoned me, Mr. President.”
“Have a seat first.”
As Prosecutor General Yoon sat down, Kim Hak-kwon let out a deep sigh.
“What on earth has happened with Jungwoo Group?”
In response to the direct question, Prosecutor General Yoon did not hesitate to give the answer he had prepared on his way over.
“The accounting fraud is truly severe, Mr. President. If left alone, it could become a time bomb and blow up the Republic of Korea in one fell swoop.”
“No, man. If something like that happens, you should have reported it to me, the president, first.”
“I apologize. We were also in the middle of preparations, but the media suddenly broke the story first, so we had no choice.”
At those words, Kim Hak-kwon sighed again. Prosecutor General Yoon drove the nail in.
“We had no choice but to make an emergency arrest as Chairman Park Dae-ho could flee the country at any moment. The court reviewed the materials we prepared and immediately issued a warrant.”
In response to Prosecutor General Yoon's answer, President Kim Hak-kwon frowned and remained silent for a while. At last, a heavy question came from his lips.
“Are you planning to detain Chairman Park?”
“That is correct. If he is released without detention, there is a significant concern that he will attempt to tamper with evidence and find scapegoats.”
“There are many things Chairman Park needs to do, starting with the gold-collecting campaign. Can't we work something out?”
Then, Prosecutor General Yoon spoke with a look of concern for Kim Hak-kwon.
“If you give the order, Mr. President, I will follow it. However, the political burden will be great.”
“Isn't this the honeymoon period? The media won't publish negative articles about me for now. In that case... let's have Chairman Park investigated without detention for now. I'm not saying to drop the charges. Just investigate slowly, without detention.”
“Yes, Mr. President.”
Just then, the chief of staff, who was outside, hurriedly opened the door and came in.
“Mr. President! I think you need to see the news!”
“What? What is it?”
Kim Hak-kwon, who was about to scold him for the sudden opening of the door, shut his mouth upon seeing the chief of staff's pale face. The chief of staff silently turned on the TV.— We are preparing a hostile takeover of Jungwoo Group's major affiliates.
As a major shareholder, we can no longer stand by and watch Chairman Park Dae-ho's misconduct, so we have made a decision.— What are your future plans?— We will commence a public tender offer for the core affiliates, including Jungwoo Corporation. We plan to move together with the many investment firms that hold Jungwoo's shares.
On the screen, a woman with an exotic appearance was being questioned by numerous reporters. The caption 'Eva Ju' was displayed at the bottom of the screen.
“What is this?”
Watching the press conference, Kim Hak-kwon's jaw dropped. Prosecutor General Yoon was concentrating on the voices of the announcers coming from the TV. The chief of staff answered, his voice trembling.
“The press conference is just the beginning. Word is that American investment banks have contacted the Ministry of Finance, demanding that the government clarify its position on Jungwoo Group.”
“What?”
“If the government doesn't follow through with the agreement....”
The chief of staff couldn't bring himself to say the rest, but President Kim Hak-kwon knew what would follow without hearing it.
“Get the Minister of Finance and Economy in here at once.”
“Yes, Mr. President.”
The chief of staff hurried out, and President Kim Hak-kwon turned to look at Prosecutor General Yoon.
“For now, let's take our time thinking about Chairman Park's treatment. You handle it as you see fit.”
Prosecutor General Yoon nodded with an indifferent expression.
“Then I will take my leave, Mr. President.”
“Keep me updated on the investigation.”
“Understood.”
Getting up from his seat, Prosecutor General Yoon bowed his head to the president and turned around. Just then, President Kim Hak-kwon's voice stopped him.
“By the way, what is the scale of the accounting fraud?”
Prosecutor General Yoon turned back. His lips, which had been set in a hard line, parted.
“What has been uncovered so far already exceeds ten trillion won. And this is just the tip of the iceberg.”
“Hah....”
For a moment, President Kim Hak-kwon was speechless at the enormous sum.
“Besides that, we've also found evidence of secret funds being moved abroad. Embezzlement and breach of trust are a given.”
“...I see. You may go.”
“Yes, Mr. President.”
After Prosecutor General Yoon left, Kim Hak-kwon, now alone, held his head in his hands.
“What on earth was Chairman Park thinking.”
As he was shaking his head, lost in thought, the Minister of Finance and Economy, Lee Seong-gyu, opened the door and entered.
“Your Excellency, you summoned me.”
“Minister Lee, welcome. Have a seat.”
Lee Seong-gyu, who had been a bureaucrat during the Fifth Republic era, could not easily break the habit of using the term 'Your Excellency', even though Kim Hak-kwon had asked him to refrain from it.
“What's the atmosphere like?”
“The Ministry of Finance and Economy's position is to oppose injecting public funds into Jungwoo Group, using this opportunity as a warning to the conglomerates. Trying to save Jungwoo Group could bring down the Korean economy.”
“Heo....”
“The IMF, in particular, will not stand idly by. The promised dollars have not yet fully entered the country.”
“It's the third-largest conglomerate in the business world. If it collapses, we don't know what side effects there might be.”
Kim Hak-kwon said heavily. Lee Seong-gyu's expression was also grim.
“What is the prosecution saying?”
“They say they'll proceed with a detained investigation.”
“The second round of aid from the IMF has put out the immediate fire, but there is still no new investment from foreign investors. If Your Excellency steps in to save Jungwoo Group, which has owner risk, no investor might invest in Korea.”
President Kim Hak-kwon felt frustrated.
“This woman named Eva who held the press conference today, what kind of person is she?”
“She's a Hong Kong-based investor who entered the country under the name Mirae Investment before the IMF agreement was signed. It's presumed that Hong Kong and British capital are behind her. Currently, she is investing mainly in real estate, but... I believe she will eventually engage in corporate hunting.”
“Her financial power?”
“Among the foreign capital that has entered the country, she is considered to be in the upper ranks.”
Kim Hak-kwon, muttering the name Mirae Investment under his breath, let out a groan.
“She says she's attempting a hostile M&A. How do you think it will play out?”
“It will likely be difficult. Even if she acquires all the shares available on the market, it will be hard to win when the Jungwoo Group affiliates have their shares intertwined with each other. However, as time passes, even that cannot be guaranteed.”
The circular shareholding structure of South Korean conglomerates was quite solid. However, while it appeared solid on the surface, from the perspective of foreign investors, it was a governance structure with many loopholes to exploit.
“Over ten trillion won in accounting fraud was discovered at Jungwoo Group. Is this a normal thing?”
Lee Seong-gyu's face turned slightly pale.
“Accounting fraud by conglomerates is not a recent problem. We had the case of Hyeonbo Group just recently. But ten trillion won... I've never seen an amount like that before.”
“How about dismantling Jungwoo Group and having other conglomerates acquire it?”
“It's too big. Setting aside the acquisition funds, the burden of debt and bad debts is so large that other conglomerates won't readily step forward. I can't say for certain about a few blue-chip affiliates, but they won't even glance at the insolvent ones.”
As Lee Seong-gyu shook his head, Kim Hak-kwon covered his forehead with his hand and muttered.
“Are you saying there's no way?”
“Your Excellency knows, don't you? Who the investor is that could be a white knight for our government... on good terms with the U.S. government, and though it's foreign capital, it's friendly to Korea.”
“Are you talking about Mr. Han?”
“Yes, we can ask for his help in this emergency, and once the Korean economy stabilizes, we can then ask him to resell to domestic conglomerates. Other private equity funds will sell off anything valuable as soon as they acquire a company. Their goal isn't the company, but its capital.”
The conversation between President Kim Hak-kwon and Minister of Finance and Economy Lee Seong-gyu continued for a long time after that. A short while later, after finishing his meeting with the president, Minister of Finance and Economy Lee Seong-gyu left the Blue House and made a phone call from inside his official car.
“Yes, Senior. It seems the government will not be saving Jungwoo Group. I think you can proceed as planned.”— Thank you.
Let's arrange a meeting soon.
“Don't mention it. I'll see you next time.”
A look of satisfaction appeared on the face of the Minister of Finance and Economy as he hung up the phone. He was the head of the economy, responsible for Korea, but Lee Seong-gyu was also a key member of the Mofia. The official car carrying Lee Seong-gyu slowly entered a tunnel.
The future of Jungwoo Group was also flowing into a long, endless tunnel.* * *In the end, an arrest warrant was issued for Chairman Park Dae-ho, and he was locked up in a detention center that very evening. For several days, the front pages of the major daily newspapers were plastered with stories about Jungwoo Group.
“No word from the Blue House yet?”
“Yeah, not yet.”
“They'll call soon. Eva is playing her part faithfully.”
Eva continued to give interviews to the media, expressing her views. With Jungwoo Group faltering and Eva's public tender offer, a warm breeze was blowing through the stock market for the first time in a long while, after it had fallen into a dark age.
Domestic conglomerates were also snooping around to see if there were any palatable Jungwoo affiliates, and large overseas private equity funds were also showing their intention to join the acquisition battle, deepening the government's worries.
“The accounting fraud that's been revealed so far is just the tip of the iceberg. Once the Financial Supervisory Service conducts a proper investigation, even those who jumped into the acquisition battle will throw their hands up and back out. Except for a few blue-chip affiliates, that is.”
The accounting fraud of Jungwoo Group was such that it could be called a textbook example. All sorts of ingenious methods that surpassed the imagination, methods that even experts couldn't comprehend, were mobilized. It must have been a joint creation mobilized by dozens of accounting experts and certified public accountants.
It would take the Financial Supervisory Service a long time to uncover everything. All of Korea's attention was focused on the insolvency of Jungwoo Group, but in the meantime, other domestic companies continued to go bankrupt. For the government, it was time to quickly decide on the disposition of Jungwoo Group.
“When the Blue House calls, should I meet them alone? What about you, Mu-hyeok?”
“This time, you have to move alone, brother.”
I patted Han Gyeong-yeong's shoulder. No matter how favorably President Kim Hak-kwon views me, he wouldn't welcome my intervention.
“Get as much of the debt written off as possible. But say that you'll acquire everything, as long as it's not beyond recovery.”
“Okay.”
Taking over Jungwoo Group whole was not something that could be done in a short amount of time. With two experts, Eva and Han Gyeong-yeong, mobilized, the government had no choice but to side with Han Gyeong-yeong, even without my intervention. Leaving the matters of the light to them, it was now time to handle the matters of the shadow.
“Just wait. It's going to get more interesting.”
When the Interest Limitation Act was abolished, many money lending companies from Japan began to enter the country. Small and medium-sized lenders with no connection to the Blue Wind Association also began to enter Korea in search of the tempting fruit of a new market. Japan's maximum legal interest rate was 29.5%.
Government supervision was also stricter, so even just maintaining high-interest rates as demanded by the IMF made it a good market. But with the Interest Limitation Act completely abolished, there was no reason for the Japanese lending companies not to come in.
In particular, A&S Financial, established with backing from the Yamaguchi-gumi, which was connected to the Blue Wind Association, appointed a Korean as its boss and began aggressive promotions. A&S Financial was a domestic corporation, but with the Japanese corporation J&K Capital holding 99.97% of its shares, it was, in effect, a Japanese money lending company.
Due to the austerity measures of domestic financial institutions, ordinary people were ultimately left with no choice but to take out private loans. Their suffering grew along with the ridiculously high-interest rates.
“We are entering an interest rate war with A&S Financial. Unconditionally offer loans at an interest rate 1% lower than theirs. Especially, aggressively promote refinancing loans for people who borrowed from Rush & Money.”
I slowly explained what had to be done to Hyeon-seong and Boss Kim Ho-sik. The war of money. It was the beginning of a game of chicken that would continue until one side collapsed.
“It would be nice if we could face them elegantly with a straightforward approach, but if that were possible, the Japanese wouldn't have come in the first place. For this matter, I will mobilize all the power I have. You must win, no matter what.”
If we win this fight, we can cut off the Blue Wind Association's lifeline.
< The Beginning of the War of Money. > End