[THE INVESTOR] Prosecutors are focusing on five main allegations against Lotte Group in their probe on the nation’s fifth largest conglomerate. 

1. Shin Kyuk-ho and Shin Dong-bin’s 30 billion won (US$25.6 million)

Prosecutors on June 16 secured testimony that Lotte group founder Shin Kyuk-ho and his son -- current group chairman Shin Dong-bin -- had collected 10 billion won and 20 billion won, respectively, from the affiliates under the conglomerate. The two Shins asserted that the amount was for their salary and dividend, however, prosecutors suspect that these funds were actually used as slush funds. 


2. Shin Dong-bin’s investment in China

Lotte Group in 2010 purchased a Chinese company Lucky Pai for about 150 billion won. In this process, the conglomerate created an offshore company LHSC based in the tax haven Cayman Island to facilitate the purchase. Prosecutors believe that LHSC took over Lucky Pai at an above market price and secured the leftover amount as slush funds for Shin Dong-bin. Ever since the acquisition, LHSC has recorded billions of won deficit every year, questioning the purpose of the purchase. Lotte Group, however, claims that it’s early to judge whether Lucky Pai purchase was successful or not. 


3. Shin Kyuk-ho’s real estate purchase

Prosecutors are investigating allegations that Shin Kyuk-ho purchased cheap real estate and sold them off to other affiliates at a much higher price to secure his slush funds. In 2007, Shin resold land that he had granted to Lotte Scholarship Foundation to Lotte Shopping for 103 billion won, a hike from the initial plan of 70 billion won. However, Lotte officials said the real estate price was measured by the official land valuer, ruling out the allegation that it was overvalued for sale. 


4. Lotte Chemical’s role

Prosecutors are investigating whether the chemical unit played a key role in stashing slush funds for the group executives. According to reports, Lotte Chemical has amassed funds by overstating the import price of raw materials and later siphoned them off. In this process, Lotte Chemical stuck a deal with Lotte Corporation Japan, one of its affiliates, to purchase raw materials. But Lotte Chemical denied the allegation saying they have stopped trading through Lotte Corporation Japan in 2013.

5. Hotel Lotte’s inter-affiliate transaction

Prosecutors believe Hotel Lotte, the de facto holding company of Korea-based Lotte affiliates, made unfair profits when it acquired Hotel Lotte Jeju and Lotte Buyeo Resort in 2013 by acquiring the resorts at a lower price than the market average. Prosecutors on June 14 raided the two resorts and the accounting firm Deloitte Anjin, which carried out the valuation of assets for the 2013 mergers, to track the flow of Hotel Lotte’s profits from the mergers. However, Lotte said the valuation was carried out properly.

Meanwhile, the ongoing power battle between Shin Dong-bin and his older brother Shin Dong-joo will continue on at the Tokyo-based Lotte Holding's general meeting of shareholders, set for June 25.

By Ahn Sung-mi (sahn@heraldcorp.com)