[At a Crossroads for Listed Companies] Seongan Owner Family Controversy Over Selling Shares Before Disclosing Embezzlement Facts

[Asia Economy Reporter Lim Jeong-su] An embezzlement incident has occurred at Seongan Group, a mid-sized textile company whose stock price surged after being known for its close ties with Gyeonggi Province Governor Lee Jae-myung. Seongan Hapsem, where Park Sang-wan, vice president and younger brother of Seongan Chairman Park Sang-tae, and Park Sang-won, the eldest brother and CEO, are involved, sold a large amount of their shares at high prices before disclosing the embezzlement, sparking controversy.

On the 3rd, Seongan announced that an embezzlement incident occurred at its subsidiary Seongan Hapsem. Seongan Hapsem confirmed through an internal investigation that funds had been embezzled over several years. The embezzlement amount is estimated to be about 20 billion KRW. The company stated that it is currently under police investigation and will re-disclose the embezzlement scale once the amount is specified.

Despite the embezzlement incident, Seongan said that production and business activities are proceeding normally, the impact of the incident will be minimal, and all efforts will be made to minimize losses.

However, ordinary shareholders are criticizing the fact that the owner family sold their shares on the market before the embezzlement was disclosed. There are suspicions that they sold shares knowing about the embezzlement in advance before the stock price dropped. If shares were sold using undisclosed information, it could lead to prosecution by the prosecution.

Vice President Park Sang-wan sold 2,024,493 shares (3.56% stake) on the market from the end of January to February 8, cashing out more than 2 billion KRW. The remaining shares are only 730,000 (1.28%). Park is also known as an alumnus of Chung-Ang University with Governor Lee Jae-myung and was a key figure in raising Seongan’s stock price from the 300 KRW range to over 1,000 KRW.

Seongan Hapsem, led by Chairman Park’s eldest brother Park Sang-won, also sold its Seongan shares before the embezzlement disclosure. After mid-February, Seongan Hapsem sold all 1.1 million shares (1.93%) it held on the market.

A Seongan official explained, "Vice President Park sold shares to cash out for personal business use. Although this situation is enough to cause misunderstanding, it is unlikely that he sold shares knowing about the embezzlement in advance." The official added, "Since the police investigation is still ongoing, the loss amount cannot be confirmed yet, and the financial statements may be revised depending on the embezzlement amount."

It is uncertain whether Seongan, a listed company, will receive an ‘unqualified’ opinion on its 2020 financial statements audit. Depending on the audit opinion from the accounting firm, it could lead to designation as a management item or even delisting.

An accounting firm official said, "If there is evidence that major shareholders are involved in the embezzlement case, it will be difficult to receive an unqualified audit opinion. However, if the company discovered the embezzlement personally committed by employees through internal audits, it will be recognized that internal control functions worked, and an unqualified opinion may be possible."

Meanwhile, Seongan Hapsem, where the embezzlement occurred, is 62.92% owned by its parent company Seongan, 6.97% by CEO Park Sang-won, and 30.11% by other related parties.