Former Taekwang Group Chairman Lee Ho-jin was pardoned last year during the Liberation Day special pardon, but immediately faced a prosecution investigation due to allegations of creating slush funds through affiliated companies, leading to ongoing 'owner risk' in financial affiliates such as Heungkuk Life.
The governance structure of Taekwang Group's financial affiliates is a parallel structure in which Lee serves as the largest shareholder in each financial company. Lee holds 56.3% equity in Heungkuk Life, controlling Heungkuk Fire&Marine Insurance; 68.75% equity in Heungkuk Securities, controlling Heungkuk Asset Management; and 30.5% equity in Korea Savings Bank, controlling YeGarim Savings Bank. This is the opposite of a vertical structure where controlling a single financial company indirectly controls multiple affiliated financial companies.
In addition to direct control, Lee also exerts his power through TRN, which serves as the holding company for Taekwang Group. TRN is a family-run company in which Lee and his child Lee Hyun-jun hold over 90% equity. TRN controls Daehan Synthetic Fiber and Taekwang Industrial, both of which hold shares in financial affiliates. This means that direct control through Lee's equity and indirect control via TRN are being exercised simultaneously.
However, legal risks surrounding Lee have emerged as a new variable. The Seoul Metropolitan Police Agency referred Lee to prosecutors in September last year on charges of embezzlement and breach of trust under the Specific Economic Crimes Act. The police concluded that Lee had created slush funds amounting to hundreds of millions of won.
If Lee is found guilty, the issue will concern the savings bank affiliates. According to the Mutual Savings Bank Act, one of the requirements for maintaining major shareholder qualifications is social credit. If Lee, as the major shareholder, fails to meet the eligibility criteria, voting rights will be limited to 10% equity. Financial authorities may also order the sale of shares exceeding 10%.
If voting rights are restricted, the de facto largest shareholder of Korea Savings Bank will be Lee Won-jun, Lee's nephew, who holds 23.2% equity. Lee Won-jun is the eldest son of former Taekwang Group Vice Chairman Lee Sik-jin, the first son of Lee Im-yong. Lee's son, Lee Hyun-jun, holds no equity in the financial affiliates except for 430,000 preferred shares of Heungkuk Securities.
The dominance over insurance affiliates such as Heungkuk Life and Heungkuk Fire&Marine Insurance is not expected to be an issue. Unlike savings banks, the requirements for maintaining major shareholder qualifications in insurance affiliates are limited to violations of tax laws, fair trade laws, and financial regulations. This means that even if Lee is found guilty of embezzlement and breach of trust, it won't affect his eligibility.
The designation of Taekwang Group as a mutual investment-restricted corporate group (chaebol) will negatively impact Lee's control. According to the Fair Trade Commission, last year Taekwang Group's fair asset size was 9.663 trillion won, which is not far from the 10.4 trillion won threshold for chaebol designation. Taekwang Group's total assets have increased annually by more than 500 billion won since starting at 8.146 trillion won in 2020, excluding 2023. If this trend continues, it could be designated as a chaebol within five years.
If designated as a chaebol, discussions will arise regarding converting TRN, the core of Taekwang Group's governance structure, into a holding company. However, if it transitions to a holding company system, non-financial affiliates will be prohibited from holding shares in financial affiliates due to the separation of finance and industry principle. This means the shares held by TRN and its subsidiaries, Daehan Synthetic Fiber and Taekwang Industrial, will need to be sold. Lee's indirect control through TRN would inevitably be undermined.
Daehan Synthetic Fiber holds 10.43% equity in Heungkuk Life, 20.2% equity in Korea Savings Bank, and 22.16% equity in YeGarim Savings Bank. Taekwang Industrial also holds 39.13% equity in Heungkuk Fire&Marine Insurance and 20.2% equity in Korea Savings Bank.