Police raid Hanjin KAL over alleged share maneuver to defend management control

Police have launched a forced investigation into Hanjin KAL, the holding company of Hanjin Group, over allegations that it donated treasury shares to an in-house employee welfare fund to defend management control.

The Seoul Metropolitan Police Agency Metropolitan Investigation Unit's financial crimes squad recently raided Hanjin KAL and related entities on suspicion of violating the Capital Markets Act, among other charges, according to police.

The civic group People's Livelihood Committee filed a complaint with the Seoul Metropolitan Police Agency in May last year against Hanjin Group Chairman Cho Won-tae and Hanjin KAL CEO Ryu Kyung-pyo, alleging aggravated breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes and violations of the Capital Markets Act.

The complaint followed a regulatory disclosure by Hoban Group — then the second-largest shareholder of Hanjin KAL — announcing it had raised its stake from 17.44 percent to 18.46 percent. Three days later, Hanjin KAL disclosed that it would donate 440,044 treasury shares, representing a 0.66 percent stake worth about 66.3 billion won ($48.9 million), to its in-house employee welfare fund.

Treasury shares carry no voting rights while held by the company, but once transferred to an in-house employee welfare fund they become shares owned by the fund and voting rights are restored.

Hanjin KAL said at the time that the decision was made to improve the financial stability and welfare of its employees. Industry observers, however, suggested the move was aimed at converting the non-voting treasury shares into friendly shares through the welfare fund, at a time when the gap between Chairman Cho's camp and Hoban Group was narrowing.

In its complaint, the committee argued that "treasury shares were purchased with company cash belonging to all shareholders, not the funds of the controlling shareholder," adding that the donation "constitutes an unjustified act of giving with no recognized purpose other than defending control."

Police are expected to examine the circumstances surrounding the treasury share donation and whether any unlawful conduct occurred in the decision-making process at the time, based on materials secured through the raid.