False Disclosures Leave 10,000 Retail Investors in Tears... Koo Bonhyun Detained After 8 Years on the Run Overseas (Comprehensive)

Arrested in Cambodia... Extradited to South Korea this month
Minority shareholders estimated to have suffered losses of 200 billion won
Embezzled 4.6 billion won, including by using company funds for entertainment expenses

Koo Bonhyun, 57, a third-generation member of the former LG family who made enormous profits from stock price gains by acquiring KOSDAQ-listed companies and making false disclosures, among other schemes, and then fled overseas for eight years, has been detained following his extradition to South Korea.

On November 13, the Financial Crime Investigation Unit of the Seoul Metropolitan Police Agency’s Metropolitan Investigation Division said Koo had been extradited from Cambodia to South Korea and arrested on November 9 on suspicion of violating the Capital Markets Act and embezzlement and breach of trust under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes. He was formally detained on November 11 after a court hearing to review his detention warrant.

At a briefing that day, Lim Jeongwan, head of the Financial Crime Investigation Section 1 at the Seoul Metropolitan Police Agency, said, “From February 2016, A damaged the fairness and transparency of the capital market through methods including acquisitions without capital, false disclosures and sales of shares held under borrowed names.” He added, “The confirmed embezzlement alone amounts to 4.6 billion won, while the breach of trust amounts to 12.3 billion won. The scale of the illicit gains from violations of the Capital Markets Act is also enormous.”

From February 2016 to December 2017, Koo acquired KOSDAQ-listed Company M, an IT company, and Company P, a game company, without investing his own capital, and acquired shares under borrowed names. He then acquired unlisted Company B, a promising game-item trading intermediary, using funds including loans secured by his stakes in the listed companies, but issued false, positive disclosures suggesting that he had financed the acquisition with his own capital.

After driving up stock prices through acquisitions without capital and false disclosures, Koo sold shares held under borrowed names to reap enormous illicit gains, then fled to the Netherlands in October 2018. In May 2019, prosecutors obtained an arrest warrant for Koo and issued an Interpol Red Notice. In the meantime, Koo is said to have lived in Cambodia for eight years after passing through France and Thailand.

More than 10,000 retail investors suffer losses of around 200 billion won

The case dates back to 2016. At the time, positive information began circulating among individual investors about Company P, a KOSDAQ-listed company that had made a name for itself with a barista-training simulation game. A blueprint was presented under which Company M would acquire Company P and then invest more than 80 billion won in total, including in unlisted Company B, a game-item trading intermediary that generated annual profits of more than 10 billion won.

The market reacted strongly, with the companies even holding investor briefings. Company P’s share price, which was in the 2,000-won range in November 2016, soared to the 10,000-won range in just five months. Its trading volume, which had stood at around 25,000 transactions per month, surged to 3.1 million in December 2017, a year later.

However, in March 2018, trading in Company P was suspended after its accounting firm refused to issue an audit opinion, citing issues including the company’s internal cash-flow problems. The company was ultimately delisted in September that year. Company M also went through the process of being delisted, and an estimated more than 10,000 minority shareholders who had invested in the two companies suffered combined losses of around 200 billion won.

Koo is suspected of making enormous illicit gains estimated at around 14.5 billion won by selling shares in listed companies that he held under borrowed names as Company P’s share price rose. He is also suspected of embezzling 4.6 billion won by using the company’s cash assets for entertainment expenses or entering into fictitious consulting contracts. In addition, he allegedly caused losses of around 12.3 billion won through breach of trust by lending company funds without collateral and arbitrarily using shares the company held as collateral for loans to affiliates.

Recently extradited from Cambodia; police examining hidden assets

Koo left the country and went into hiding around October 2018, before prosecutors began their full-scale investigation. In May 2019, prosecutors obtained an arrest warrant for Koo and issued an Interpol Red Notice. After a revision to the Criminal Procedure Act, the Seoul Metropolitan Police Agency’s Financial Crime Investigation Unit took over the case from prosecutors and continued the investigation.

Koo was arrested by local police in Cambodia on August 25 and extradited to South Korea on November 9, about two months later. Following police questioning and a court hearing to review his detention warrant, the warrant was issued on November 11. Police plan to question Koo about the exact amount of illicit gains he made by selling shares held under borrowed names and whether he has hidden assets.

Section Chief Lim said, “We will continue to respond firmly to various illegal acts that disrupt order in capital market transactions,” adding, “We will also handle without delay cases transferred from prosecutors under the revised Criminal Procedure Act.”

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