April 27 (Bloomberg) -- South Korean prosecutors filed an arrest warrant for Hyundai Motor Co. Chairman Chung Mong Koo on charges of misusing company funds and embezzling 100 billion won ($106 million) to bribe government and banking officials.
The warrant was filed with a court that will rule tomorrow, said Chae Dong Wook, a prosecutor at the Supreme Prosecutors' Office in Seoul. Chung, 68, and his son donated 1 trillion won this month as part of a public apology for the scandal engulfing Korea's biggest automaker. Chung was unavailable to comment.
Chung's arrest, following a 15-hour grilling by prosecutors this week, would leave a management vacuum at the company his late father founded in 1967. Hyundai Motor's market value quadrupled since 2001, overtaking General Motors Corp. and Ford Motor Co., as Chung built plants in the U.S. and China to produce Sonata sedans and Elantra compact cars.
``The chairman's arrest will definitely be negative as his influence on the company was absolute,'' said Choi Chang Hoon, who helps manage about $1.1 billion at Woori Asset Management Co. in Seoul. ``Hyundai is an important stock so it won't be easy to make quick decisions on whether to sell the stock on the news.''
The probe into Hyundai is the second into a leading business group in the past year. Samsung Chairman Lee Kun Hee donated 800 billion won to charity after two executives were convicted for helping his children illegally obtain cheap stock.
Shares of Hyundai fell 3 percent, extending its drop this year to 13 percent. The benchmark Kospi index climbed 5.3 percent in 2006, closing at a record today. Hyundai canceled an earnings announcement scheduled for today without providing a new time.
Conspiracy Claim
At stake is Chung's ambition for Hyundai Motor and its affiliate Kia Motors Corp. to become one of the world's five largest carmakers by 2010 and his family's journey from near poverty to South Korea's third-wealthiest.
His 35-year-old son and heir apparent Chung Eui Sun conspired in some of the crimes, the prosecutors said. Chung senior also misused 300 billion won of corporate funds, Chae said, without providing details. Authorities will decide later which other Hyundai executives to prosecute, he said.
``We will make careful decisions while minimizing any impact on management and operations,'' Chae said.
Embezzlement and misappropriation of corporate funds each carry up to 10-year jail terms, according to South Korean law.
``It was a complete shock to our company executives,'' said Hyundai Motor spokesman Jake Jang. ``There is no way to fill the void in overall management if chairman Chung is arrested.''
Chung Mong Koo is in Hyundai Motor's headquarters in southern Seoul and unavailable to comment, Jang said.
Slush Fund
Chung Mong Koo told investigators that he knew about a slush fund at his company, prosecutors said on April 25. Chung Eui Sun was questioned on April 20 for 18 hours.
``We have decided to take legal action against Kia Motors Corp. president Chung Eui Sun without seeking his arrest,'' prosecutor Chae said.
Chung Eui Sun is the third generation of the Chung family to be investigated by Korean authorities. In 1978, Chung Mong Koo and his father, the late Hyundai founder Chung Ju Yung, were questioned on allegations the group awarded purchasing rights on apartments to members of the media and government officials.
Both were cleared. Still, Chung Mong Koo was arrested and incarcerated for 75 days for breaking construction regulations before paying a 5 million won fine to secure his release.
When Chung Ju Yung stepped down as chairman of Hyundai in 1987, it was the country's leading ``chaebol,'' or family run business empire, and included the world's largest shipyard at Ulsan, on the south coast, and South Korea's first automaker. Companies including Hynix Semiconductor Inc. have since cut ties with the group during reorganizations.
Leapt to Death
In March 2001, Chung Mong Koo's younger brother Chung Mong Hun leapt to his death from his 12th-floor office in Seoul. The then Hyundai Group chairman had been charged with illegally funneling $450 million to North Korea ahead of a landmark summit between the leaders of the two Koreas.
``I'm surprised that Hyundai doesn't appear to have seen this coming, the writing has been on the wall for years,'' said James Rooney, chief executive officer at Seoul-based financial consultant Market Force. ``It's obvious that prosecutors aren't playing soft here, they really want to get the message out that this kind of practice is no longer acceptable.''
Prosecutors are investigating whether Hyundai Motor paid bribes to win building permits for affiliates. The probes, which have led to the arrest of three people and travel bans on 10 executives including the Chungs, delayed plans to begin construction of factories in the U.S. and the Czech Republic.
Prosecutors are also investigating the Chung family's ownership of Glovis Co., a logistics affiliate of Hyundai Motor. The Chung family agreed to give their entire 60 percent stake in Glovis, valued at 1 trillion won, to charity.
Prosecutors have arrested the president of Glovis, a lobbyist and the head of an accounting firm in the probe.
