'Illegal Technology Fund Loan' Trial
Dispute Over 'MSO Coil' Technology Development
Defense: "Significant Research"...Prosecution: "Mass Production Is Company's Responsibility"
Former Edison Motors Chairman Kang Young-kwon, who was arrested and indicted in October 2022 on charges of stock manipulation related to the failed acquisition of Ssangyong Motor, has been undergoing a criminal trial for over a year. Recently, in court, a dispute arose over Edison Motors' 'MSO Coil' technology in connection with the additional charge of 'illegal loan of technology funds' added in April last year.
According to the legal community on the 16th, on the 11th, the Criminal Division 13 of the Seoul Southern District Court (Presiding Judge Kim Sang-yeon) conducted witness examination of Mr. A, a former employee of the Korea Institute of Industrial Technology (KITECH), who participated in the invention of the MSO Coil, during the continued trial of former Chairman Kang, who was indicted on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes.
Before the testimony, the judge explained to Mr. A, "The defendant is charged with receiving a loan of about 3 billion KRW in technology funds under the pretense of using it for Edison Motors' development funds and Ssangyong Motor acquisition funds." Edison Motors emphasized its technology, including the MSO Coil motor, highlighting its capability to acquire Ssangyong Motor and manage it in 2021. Former Chairman Kang also promoted in various interviews that "we are developing the MSO Coil motor together with KITECH and can manufacture electric vehicles through the acquisition of Ssangyong Motor." At that time, the motor developed under contract between KITECH and Edison Motors had outputs of 130 kW and 160 kW, intended for electric buses and trucks.
The defense for former Chairman Kang emphasized that considerable research was necessary for the MSO Coil motor to be actually applied to electric vehicles. The lawyer asked, "'The KITECH system' is a system that allows small and medium-sized enterprises to produce and sell products using technology registered by KITECH. Was there no actual contract made during negotiations with other companies (partners) ahead of the commercialization of the MSO Coil at that time?" Mr. A replied, "That is what I heard," adding, "If the motor developed with Edison Motors had underperformed, KITECH would not have entered into a patent contract. Ultimately, Edison Motors maintained the number one market share as a specialized electric vehicle company for over 10 years, so the government agency also proceeded with investment."
The prosecution questioned why the motor did not lead to actual mass production. The prosecutor asked, "Isn't the commercialization, mass production, and sales of the transferred technology the responsibility of individual companies, not KITECH?" Mr. A answered, "Yes. KITECH cannot and should not be involved." He also stated, "Edison Motors was an example with electric buses. Based on test evaluation results such as power output tests and climbing tests, mass production and sales were all possible."
Previously, Edison Motors was selected as the preferred bidder for the acquisition and merger (M&A) of Ssangyong Motor, which filed for corporate rehabilitation due to worsening financial conditions in October 2021. However, during the rehabilitation process, the contract was terminated in March of the following year as Edison Motors failed to pay the remaining acquisition funds. Following the news of the Ssangyong Motor acquisition attempt, Edison EV's stock price rose but plummeted after the contract termination.
In this regard, the prosecution indicted former Chairman Kang and others in October 2022, stating, "The management used the Ssangyong Motor acquisition as good news to boost Edison EV's stock price and gained an unfair profit of 162.1 billion KRW." They were also charged with inflating stock value by participating in Edison Motors' paid-in capital increase with 50 billion KRW of Edison EV funds from August to November 2021, causing Edison EV a loss of 16.4 billion KRW, and with submitting false disclosures and false documents to external auditors after Edison EV turned profitable in March 2022. In April last year, former Chairman Kang was additionally indicted on charges related to the technology fund loan.
Meanwhile, former Chairman Kang applied for bail twice after being arrested and indicted, but the court rejected the requests, citing "risk of flight." Kang was released in October last year after the expiration of the detention period and is currently standing trial without detention. According to the prosecution, approximately 125,000 small investors suffered losses amounting to about 700 billion KRW in the Edison Motors stock manipulation case.
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