'Shinrajen BW Most Payment Design' DB Financial Investment Current and Former Executives Sentenced to Prison in First Trial

Court: "Serious Misconduct in Job Fairness... Very Bad Nature of Crime"

[Asia Economy Reporter Yoo Byung-don] Former and current executives of DB Financial Investment, who conspired with ShillaJen management to orchestrate the fictitious payment of ShillaJen’s bonds with warrants (BW), have been sentenced to prison.

The Criminal Division 14 of the Seoul Southern District Court (Presiding Judge Kim Dong-hyun) recently announced on the 15th that it sentenced Son (58), former vice president of DB Financial Investment (formerly Dongbu Securities), and Lee (50), executive director, who were indicted without detention on charges of violating the Capital Markets Act and breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes, to three and five years in prison respectively. The DB Financial Investment corporation was fined 500 million won under the joint penalty provision.

They were charged with conspiring with former ShillaJen CEO Moon Eun-sang and others to carry out fictitious BW payments.

In March 2014, former CEO Moon and others borrowed 35 billion won from DB Financial Investment through a paper company, Company A, and used the funds to acquire ShillaJen BWs. Subsequently, ShillaJen lent the BW payment amount to Company A, which then repaid the 35 billion won to DB Financial Investment. Former CEO Moon is currently undergoing a retrial after being prosecuted for fraudulent transactions and breach of trust through this “round-tripping” scheme.

The prosecution judged that DB Financial Investment, which devised the fictitious BW payment, was a joint principal offender with ShillaJen management and indicted Son and others in June 2020.

According to the prosecution’s investigation, DB Financial Investment executives, including Son, managed the accounts, deposit and withdrawal slips, and corporate seals of related parties during the BW issuance process. In particular, Lee, who was the team leader at the time, requested a law firm that provided legal advice to give an opinion stating “there is no problem,” according to the investigation.

The prosecution viewed that DB Financial Investment was under performance pressure as it had failed to secure an initial public offering (IPO) underwriting contract for about ten years.

Thanks to the BW issuance and acquisition, ShillaJen management increased their shareholding ratio to meet the requirement of “holding at least 20% of shares by the largest shareholder” necessary for listing on KOSDAQ. During this process, DB Financial Investment participated as a joint lead manager for the listing and collected fees, according to the investigation.

During the trial, DB Financial Investment executives, including Son, claimed that they only provided financial advice regarding the BW issuance to ShillaJen management.

However, the court ruled, “Moon Eun-sang and three others had not considered issuing BWs until proposed by the defendants,” and “the defendants directly performed key parts of the BW issuance and were involved in the entire process.”

The court added, “The crimes committed by the two seriously damaged public trust in the fairness of duties of financial institutions and their employees, and the nature of the crimes is very grave. Nevertheless, they are shifting responsibility to Moon Eun-sang and three others for matters unrelated to the essence of the crimes, so strict punishment is necessary,” explaining the sentencing rationale.