Prosecution raids Homeplus headquarters in fraud investigation

Prosecutors investigating the Homeplus case raided the company's headquarters on Monday, looking into allegations of fraud.

A Homeplus branch in central Seoul is seen before opening hours on April 22. [NEWS1]

Prosecutors investigating the Homeplus case raided the company's headquarters on Monday, looking into allegations of fraud under suspicions that Homeplus and MBK Partners may have issued short-term bonds while being aware of the credit rating downgrade in advance and preparing for corporate rehabilitation.

The Seoul Central District Prosecutors' Office dispatched on Monday around 10 prosecutors and investigators to Homeplus’ head office in Gangseo District, western Seoul, to seize financial records.

The move is part of an effort to examine financial transactions following worsening finances after MBK Partners acquired the company, leading to a deficit of around 200 billion won ($139 million) in 2022.

Prosecutors suspect that MBK, the majority shareholder of Homeplus, and Homeplus itself, knowingly issued a large volume of short-term bonds and abruptly filed for corporate rehabilitation, thereby shifting losses onto investors.

Homeplus’ credit rating was downgraded on Feb. 28 from A3 to A3-, one notch above the speculative grade B. Just four days later, on March 4, Homeplus filed for the commencement of rehabilitation procedures with the court.

Authorities allege that MBK and Homeplus were aware of the impending downgrade as early as Feb. 25, the date when credit rating agencies first alerted them, but still solicited bond investments, misleading investors.

Filing for corporate rehabilitation freezes financial obligations. If Homeplus had issued bonds while planning the rehabilitation filing, it could constitute fraud against investors. On Feb. 25, three days before the downgrade was publicly disclosed, Homeplus issued bonds worth 82.9 billion won through Shinyoung Securities and other firms.

Unionized members of a national labor union's Homeplus chapter riot in front of MBK Partners' headquarters in Jongno District, central Seoul, on April 14. [YONHAP]

Prosecutors are also investigating the possibility of misconduct by Shinyoung Securities, the lead manager for the asset-backed short-term bonds (ABSTB) backed by Homeplus’ credit card receivables. If they failed to properly disclose risks when selling the bonds, it could be considered as misconduct.

Earlier this month, Shinyoung Securities and three other firms filed a complaint against Homeplus management, accusing them of fraud for allegedly selling bonds while knowing about the impending rehabilitation filing.

The Financial Supervisory Service (FSS) referred the Homeplus case to the prosecution on June 21. During its investigation, the FSS found indications that MBK may have been aware of the risk of a downgrade earlier than it claimed.

The FSS reportedly obtained internal documents showing that Homeplus’ financial difficulties began worsening in late 2023 and reached a breaking point by the end of the year. The agency suspects that discussions on entering rehabilitation proceedings were underway around that time.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff. BY KIM BO-REUM [lim.jeongwon@joongang.co.kr]