Lotte founder Shin's hidden cash, ledgers found

[THE INVESTOR] Prosecutors have found a breakthrough in their investigation of Lotte Group's founder and top executive, securing testimony that two officials had received more than 30 billion won ($25.6 million) annually from companies affiliated with the conglomerate.

Financial managers within the group reportedly told prosecutors during questioning that Lotte founder Shin Kyuk-ho and his son, current group chairman Shin Dong-bin, had collected 10 billion won and 20 billion won, respectively, each year in salary and dividends.

However, prosecutors suspect that these funds were actually amassed to be used in a slush fund. Investigators say that they will compare the amounts to actual salary and dividends recorded in the company’s seized books.

One key witness was Lee Il-min, a former secretary to the senior Shin. Lee revealed to prosecutors that he had removed 3 billion won and documents from Shin’s personal safe during the family feud that erupted last year between brothers Shin Dong-joo and Shin Dong-bin over management of the group.

The safe was found empty by prosecutors during the initial raid of Lotte’s offices on June 10.

The contents of the safe were retrieved by prosecutors at the home of Lee’s sister-in-law. Lee also told questioners about a secret space in the secretaries’ office at Lotte Hotel, which held ledgers detailing cash flows.

Prosecutors are currently investigating the Lotte Group for embezzlement and the creation of a slush fund through the manipulation of numbers in mergers and acquisitions.

The group and its top executives are also charged with hiding away money during transactions between the group’s affiliates, and with making illegal real estate transactions.

On Tuesday, prosecutors from the Seoul Central District Prosecutor’s Office conducted a raid on 15 additional locations including the offices of Lotte Jeju Resort. Hotel Lotte, which is effectively the holding company of Lotte’s operations in Korea, is under suspicion of manipulating the price of real estate during its acquisition of Jeju Resort in August 2013 to pull aside funds.

The current large-scale investigative operation involving over 200 employees from the Seoul Central District Prosecutor’s Office has reportedly put a stop to Lotte‘s large-scale projects and investment plans with chairman Shin Dong-bin and his closest advisers under scrutiny.

In particular, the investigation has led Lotte to indefinitely postpone the initial public offering for Hotel Lotte, which Shin Dong-bin had pursued as a way to reform the structure of the group upon emerging as the sole leader of the group after ousting brother Shin Dong-joo.

By Won Ho-jung (hjwon@heraldcorp.com)