- The Washington Times - Friday, December 28, 2001

SEOUL (AP) A South Korean court has ordered 10 executives from Samsung Electronics Co. to pay back $73.5 million to the company for mismanaging its affairs.
The decision handed down yesterday marked the first time that South Korean business executives were held legally responsible for mismanagement, which had caused serious financial losses to South Korean companies and shareholders.
It was also a victory for civic groups, which waged a vigorous campaign to end widespread illegal business practices among family-controlled conglomerates, or chaebol, such as cross-funding and internal trading.
"Internal trading is a cancer for the development of capitalism, blocking fair competition," Judge Kim Chang-suk said in issuing the ruling.
People's Solidarity for Participatory Democracy, a Seoul citizens' group, hailed the ruling. The group led 22 minor Samsung shareholders in 1998 to sue the electronics giant, accusing it of illegal internal trading. It demanded that the company's chairman, Lee Kun-hee, and 10 other executives pay back $264 million to the company.
The group cited cases of mismanagement including sales of Samsung-owned stock to subsidiary companies at artificially low prices, a measure commonly used by conglomerates to subsidize weaker units. South Korean law bans such internal trading, but enforcement was lax under previous military-backed governments.
Conglomerates have come under closer scrutiny as South Korea's economy wobbled in the aftermath of the 1997-98 Asian financial crisis. A few dozen conglomerates collapsed, forcing South Korea to bail out its economy with the help of the International Monetary Fund.
In yesterday's ruling, the civil court in Suwon, south of Seoul, where Samsung's head office is located, noted that the illegal business practice devalued the company's stock, causing financial losses to shareholders.
The court ordered the company's chairman, Mr. Lee, to pay back $5.5 million he had used from 1988-92 to bribe Roh Tae-woo, then the president, to win government contracts. Mr. Lee had pleaded guilty to the charges in a separate trial.
The Suwon court also told nine other Samsung executives to pay back a total of $68 million, holding them responsible for various cases of mismanagement, including a 1997 decision to acquire a near-bankrupt company without closely checking that firm's financial health. The company later was liquidated.
South Korea's conglomerates expanded recklessly with massive bank borrowings until the early 1990s amid the perception that they were too big to fail. A typical conglomerate would have 40 to 50 subsidiaries, making everything from computer chips to cars and clothes.
South Korea's economy has rebounded from the regional economic crisis, growing 10.7 percent in 1999 and 8.8 percent in 2000. But many analysts believe that the country's corporate restructuring still has a long way to go to achieve sustained growth.

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