Chokwang Leather: "Allegations of Favoritism in Awarding Contracts Are Untrue"

Chokwang Leather said on October 28 that a shareholder derivative lawsuit filed by minority shareholders against CEO Lee Yeonseok and the board had concluded after the plaintiffs agreed to withdraw the suit and not file another one on the same grounds. The company also said that an investigation by a court-appointed inspector found no circumstances supporting claims of losses related to alleged “favoritism in awarding contracts” in transactions between the company and its affiliate.

Earlier, this newspaper reported in an article published on August 19, 2022, titled “Chokwang Leather CEO Lee Yeonseok Converts Nominee Shares to Registered Shares... Concealed Stake for Five Years,” that minority shareholders, including Park Youngok, CEO of Smart Income, had filed a shareholder derivative lawsuit against Lee and board members. They alleged that Lee had steered business from Chokwang Leather to Jukwang Co., Ltd., which he founded, causing total losses of KRW 125 billion over seven years.

According to Chokwang Leather, the shareholder derivative lawsuit (Cheongju District Court case 2023Gahap52246) concluded after the minority shareholders waived their claims and agreed not to file another suit on the same grounds.

A court-appointed inspector also investigated transactions between Chokwang Leather and Jukwang. Appointed by the court at the request of Park Youngok, the inspector examined transactions between the two companies in connection with Cheongju District Court case 2020Bihap50011.

The company said the inspector’s findings revealed no circumstances supporting the minority shareholders’ allegation that Chokwang Leather had suffered losses as a result of “favoritism in awarding contracts.”

The inspector found that Jukwang had the facilities and personnel needed for its business and had actually carried out processes such as cutting, inspection and packaging. The company also said there was no evidence that Chokwang Leather had paid Jukwang additional fees for contract cutting work or sold products to it at below-market prices.

The company said there were no differences in the terms of transactions between the two companies that would indicate Jukwang received undue benefits on the grounds that the parties were related. A comparison of the average profit margins on transactions with third parties and those between related parties found no significant difference. The net cost-plus rate was 7.93%, within the comparison range of 2.05% to 10.31% presented by an independent accounting firm.

On this basis, Chokwang Leather maintains that the allegation that steering business to Jukwang caused KRW 125 billion in losses is untrue.

Chokwang Leather also said the court dismissed an application filed by Park Youngok in 2025 for a preliminary injunction seeking access to and copies of the company’s accounting books. According to the company, the court found grounds to suspect that Park was using the right to inspect and copy the accounting books as a means of maximizing investment returns or pressuring the company.

Meanwhile, Chokwang Leather said that in 2026 the Securities and Futures Commission referred Park to investigative authorities and notified them of the case over alleged stock-price manipulation involving Chokwang Leather shares.

This content was produced with the assistance of AI translation services.