Prosecutors said Tuesday they have sought an arrest warrant for the head of embattled Tong Yang Group for fraud and malpractice in issuing and selling financial products.

The 65-year-old Chairman Hyun Jae-hyun is accused of leading the issuance of fraudulent corporate bonds and commercial paper worth over 2 trillion won ($1.86 billion) since around 2007 and deliberately filing for court receivership of its five affiliates last October, inflicting heavy losses on investors and firms.

From July to September last year, the 38th-largest conglomerate in the country also issued some 156.8 billion won worth of the products while being aware of the high risk of its affiliates failing to repay maturing debts.

The liquidity crunch put more than 40,000 individual investors on the brink of losing an estimated nearly 2 trillion won in total.

Prosecution said it also requested warrants to arrest three other former senior executives of the affiliates, including the ex-president of Tongyang Securities. They have been suspected of colluding with the Hyun in the financial fraud case, with some facing corruption charges, according to the investigators.

Prosecutors suspect that the suspects deliberately tricked the investors into buying such assets even though he knew about risks stemming from the group's liquidity shortages.

Suspicions have also arisen that the family-owned conglomerate's money lending unit illegally extended loans to the group's two other key units suffering from cash shortages.

"We will continue the probe into relevant cases and indict those involved in the alleged scam if needed," an investigator said. (Yonhap News)