[Exclusive] Robex to Pursue Class Action Against MBK and Homeplus Management

Law Firm Robex, Led by Experts in Financial and Special Investigations
"Homeplus's Asset-Backed Short-Term Bond Issuance Was Illegal"
Expanding Number of Plaintiffs... Financial Institutions May Also Be Targeted in Lawsuit

Kim Kidong, representative lawyer of Law Firm Robex, is being interviewed by Asia Economy at his office in Seocho-gu, Seoul. Photo by Jo Yongjun

As Homeplus has entered court receivership, there is a growing movement to file a class action lawsuit against its majority shareholder, private equity fund MBK Partners, and the Homeplus management team.

On June 10, Law Firm Robex announced that it plans to file a 'class action lawsuit' in court soon, together with investors who claim to have suffered losses after investing in Homeplus's asset-backed electronic short-term bonds (ABSTB). Robex is a law firm specializing in financial cases, with former prosecutors such as Kim Kidong, former chief prosecutor of the Busan District Prosecutors' Office, Lee Dongyeol, former chief prosecutor of the Seoul Western District Prosecutors' Office, and Kim Hugon, former chief prosecutor of the Seoul High Prosecutors' Office.

Kim Kidong, the lead attorney at Robex, stated, "We have completed initial interviews with about 30 victims, and after securing as much evidence as possible related to the damages, we plan to file the lawsuit," adding, "The number of victims requesting legal consultation is increasing, so we expect the number of plaintiffs to grow significantly."

Robex points out that the key issue is the high likelihood that the process of issuing Homeplus's short-term bonds was illegal or excessively aggressive. According to Robex, the root cause of the problem is that Homeplus, suffering from a lack of cash liquidity due to MBK's aggressive leveraged buyout, securitized payments to suppliers in an 'abnormal' manner.

Instead of paying suppliers directly, Homeplus chose to settle payments using an 'ultra-short-term card credit' method. These 'accounts receivable' were circulated among credit card companies, special purpose companies (SPCs), and securities firms, and were eventually sold as 'high-yield bonds with annual returns of 6-7%'. These bonds, with short maturities and relatively high yields, were sold briskly in the low-interest-rate environment.

Robex stated that the problem escalated on February 28, when Homeplus's short-term credit rating was downgraded from 'A3' to 'A3-'. On March 4, Homeplus filed for corporate rehabilitation, and as a result, the securitized short-term bonds of Homeplus (worth 461.8 billion won as of March 4) became virtually worthless, according to Robex. As a result, investors claim they suffered losses because they were unaware of these developments at the time of their investment, which is the assertion of both Robex and the victims.

Kim Kidong, the lead attorney, said, "There is strong suspicion that Homeplus issued 'rollover bonds' to investors," adding, "In the 2011 LIG Construction and 2013 Tongyang Group cases, willful negligence regarding the risk of bond default was recognized, and those involved received heavy sentences."

Robex is also considering filing lawsuits against financial institutions such as credit card companies and securities firms that were involved in the issuance and sale of these bonds, depending on how the current lawsuit progresses. The law firm claims that while the victims bear all the losses, the financial institutions have not suffered any real damages.

Additionally, Robex is reportedly planning to file criminal complaints against MBK and the Homeplus management team for fraud and breach of trust. Kim Kidong stated, "If the lawsuit expands, it may be difficult for large law firms to get involved due to potential disputes with financial companies," adding, "For us, this case involves multiple issues, including moral hazard by private equity funds and irregular asset securitization, so we are preparing a joint lawsuit out of a sense of duty to help the victims."

Meanwhile, separate from the lawsuit preparations by Robex and the victims, the prosecution's investigation into MBK and Homeplus is also underway. On April 28, prosecutors raided the residences of Kim Byungju, chairman of MBK, Kim Kwangil, vice chairman, and Cho Jooyeon, CEO, as well as the MBK Partners headquarters. On May 17, prosecutors also seized the mobile phone of Chairman Kim upon his arrival at Incheon International Airport.

'MBK Jeondanchae' and 'SKT Hacking': Growing Number of 'Class Actions' Calls for Expansion Like in the US

The class action system allows multiple victims to resolve their claims through a single lawsuit, rather than filing individual suits. While the intent is to enable groups of people who have suffered common damages to receive compensation together, the scope of recognition in Korea is extremely narrow. Under current law, class actions are limited to the 'securities sector' and even then, only if certain conditions are met, such as false disclosures by listed companies. As a result, since the system was introduced in 2005, only two cases have reached a substantive judgment: ELS No. 289 and the Simotech stock manipulation case.

In contrast, in the United States, class actions are possible in almost all fields, including environmental, consumer, personal data, and human rights issues. Known as 'class actions,' this system can impose astronomical damages on companies found to have violated the law, prompting many companies to reach large settlements before trial.

In January, Apple agreed to pay a total of $95 million (about 129 billion won) to consumers in a class action lawsuit related to allegations of personal data collection by its voice assistant 'Siri.' Similar cases have involved Facebook, Volkswagen, and others. A lawyer in Seocho-dong commented, "About 80% of class action cases under US federal securities law end in settlements," explaining, "Because litigation costs are enormous and juries tend to be biased against companies, the settlement rate is inevitably high."

In Korea, since the US-style class action system has not been fully adopted, actual lawsuits are handled as joint litigation or through the representative party system (where a representative plaintiff is appointed and the judgment applies only to some parties) under the Civil Procedure Act. Strictly speaking, the lawsuits that Law Firm Robex is currently pursuing regarding 'MBK Jeondanchae' or the 'SK Telecom hacking' are not US-style class actions, but rather 'joint lawsuits.'

As a result, even when there are hundreds of thousands of victims, it is difficult to obtain a single, unified judgment. The high cost of litigation, the burden of proof, and procedural hurdles also limit victim participation.

Accordingly, there are growing calls in Korea for expanding the scope of class actions, similar to the US system. The advantages are clear: it is more favorable for victim relief and strengthens corporate accountability. Son Gyejun, an attorney at Law Firm Daeryun, stated, "Currently, if hundreds of people want to file a lawsuit, they have to individually collect personal information and powers of attorney, which is highly inefficient," adding, "If the system is fully implemented, people who have suffered the same damages could benefit from the judgment without such procedures."

However, there are also concerns, particularly from companies, about the potential for excessive litigation, an increase in lawsuits driven by law firm profit motives, and the chilling effect on business activities. From the corporate perspective, even if they win the lawsuit, they still face reputational damage and legal costs. These burdens can be even greater for smaller companies.

Discussions on expanding the class action system have been ongoing for several years, but have not passed the National Assembly. Recently, following the SKT USIM hacking incident, Chang Kyugeun, a lawmaker from the Innovation Party for the Nation, proposed a 'Comprehensive Class Action and Punitive Damages' bill. This bill would allow class actions for damages in any field, as long as there are at least 50 victims, effectively introducing the system in full. In the 22nd National Assembly, there are two other pending bills: the 'Class Action Act' proposed by Baek Hyeryeon of the Democratic Party and the 'Class Action Act for the Protection of Consumer Rights' proposed by Park Jumin of the Democratic Party, making a total of three bills under consideration.

The legal community argues that, rather than simply expanding the system, measures to mitigate side effects and legislative improvements should be implemented together. Ha Jongseon, an attorney at Law Office Naru, stated, "For example, even in lawsuits over automobile defects, companies refuse to submit any documents, citing 'trade secrets,' and there is no means to sanction them," adding, "The introduction of a discovery system would make the expansion of class actions meaningful."

Gu Taeon, an attorney at Law Firm Lin, stated, "If class actions are expanded, criminal penalties for companies should be eliminated for balance," adding, "If criminal penalties are added to civil cases, companies will inevitably be shaken, so the structure of double and triple punishment must be improved."