A maze game called ‘Who owns BBK?’

Disclaimer: The following is a totally unauthoritative personal translation of an article appeared in the magazine <The Weekly Kyunghyang>, a sibling publication of daily newspaper <Kyunghyang Shinmun>, back on Dec. 4, 2007, concerning the BBK controversy, the reviving political controversy in Korea in Dec. 2011, with the imprisonment verdict of a former Rep. Jeong Bong-ju, a prominent political commentator and a panel of the number 1 podcast program ‘Naneun Ggomsuda 나는 꼼수다’, because of remarks he made about this issue. The year 2007 was the year when presidential election was taken place and the BBK incident was a sizzling issue at that time since then ruling party presidential candidate Lee Myung-bak (and current president) was strongly suspected of being involved in the issue directly. Though 4 years have passed since the publication of the article translated here, the controversy has not settled yet completely and, in fact, it is emerging again as the hottest issue of debate in Korea now. However, the whole controversy of BBK is so involved and it is rather hard to find an authoritative material that summarizes the whole issue in a concise succinct way. To my opinion, the current article relays the basic facts of whole issue very aptly and I translated here for those who do not have any knowledge on this issue. Rights regarding this post stay with the author of original article or with <The Weekly Kyunghyang> and this post will be scrapped at their request immediately. Original article of this post (in Korean) can be found in the link at the bottom.

[Cover Story]A maze game called ‘Who owns BBK?’ (2007 12/04ㅣ뉴스메이커 752호)

The authenticity of ‘hidden side Korean contract’ is the key …

All eyes on the prosecution’s mouth

Kim Kyoung-jun’s mother Kim Kyoung-ae is entering Korea through Incheon International Airport.

Though they see BBK news every day, people have hard time grasping the whole picture of the case: why the real owner of BBK matters; how that is associated with candidate Lee (then the presidential candidate of ruling party and now President Lee Myung-bak) or with the stock price manipulation charge of Mr. Kim Kyoung-jun. They seem like a highly intertwined mathematical game that looks for the exit route through a maze.

The investment consulting firm BBK, the key player of the whole scheme, was established in Apr. 1994. It was formally registered to Financial Supervisory Service (FSS) in Nov. that year. As they register themselves as an investment consulting firm, they set up an off-shore fund named MAF and raised 64.5B KRW from domestic investors. However, the performance of the fund was dismal. They could not return the investment funds in time and, in Apr. 2001, BBK was revoked of its license as an investment consulting firm for forgery and falsification of company documents.

BBK investment consultancy license revoked in  2001

When investment consultancy license of BBK was revoked, Mr. Kim took over a KOSDAQ listed venture company named New Vision Capital using some of the off-shore fund MAF, changed its name to Optional Ventures Korea and became its CEO. In a recent interview with one domestic media, Mr. Kim’s sister Erica Kim claimed that candidate Lee had ordered the take-over.
The manipulation of Optional Ventures Korea stock price which is charged as outstanding crime by Mr. Kim started from here. In Apr. 2002, FSS reported Optional Ventures Korea to the prosecution for spreading a rumor that it had secured a foreign investment and artificially propping up the stock price by 400%.

About 5,200 small investors were involved in this case, marking a net loss amounting to 60B KRW. Mr. Kim fled to US in Dec. 2001, five months before being charged to the prosecution and was suspected of embezzling 38.4B KRW of Optional Ventures Korea in due course. Mr. Kim denies this suspect, claiming that everything was masterminded by the candidate Lee Myung-bak but candidate Lee claims that everything was Mr. Kim’s responsibility. This is the core of BBK case.

The reason why the real owner of BBK lies at the center of the whole dispute becomes clear when one follows the flow of stock price manipulation. People are relatively strange to the fact that the stock price manipulation was conducted under two different directions. It is already uncovered that the stock price manipulation has continued since before Apr. 2001, between Dec. 2000 and Jan. 2002 over one year period of time to be exact, even before the establishment of Optional Bank Korea.

The problem is that two lines of bank accounts were used for the stock price manipulation. One is an account of BBK and the other is that of LKeBank. Mr. Kim’s Optional Ventures Korea stock price manipulation through LKeBank account until now is rather clear and candidate Lee has been emphasizing the fact that Optional Ventures Korea stock price manipulation through the LKeBank account was the act of Mr. Kim alone after he and Mr. Kim had separated.

Contrary to LKeBank, stock price manipulation using BBK investment consulting is beyond comparison in terms of explosiveness. And this is why the issue of BBK‘s real owner lies at the heart of whole dispute. In one word, BBK has been the secret conduit of precarious fund management, stock price manipulation, and money laundry. First of all, BBK is suspected of being the channel that the off-shore fund MAF could have been established in a tax haven.

It is suspected that a paper company AM Papas they had established in US worked closely with BBK in the money laundry scheme. The reason why candidate Lee has ferociously denied any link to BBK so far is because he knows the explosiveness and inflammability of this issue. If it is disclosed that, as Mr. Kim has claimed, candidate Lee was the real owner of BBK or exerted practical influence through a hidden side contract, candidate Lee cannot be free of the stock price manipulation suspicion completely because it does not make sense commonsensically that the real owner did not know the flow of lump sum money at all.

The authenticity of ‘hidden side contract written in Korean’ Mr. Kim’s mother submitted to the prosecution on Nov.23 gets the whole attention because of that. In the Korean contract titled ‘Stock Trade Contract’ Mr. Kim released to the public, candidate Lee Myung-bak was listed as the seller and LKeBank CEO Kim Kyoung-jun was listed as the buyer. The contract then declares that “this contract specifies the stock transaction between Mr. Lee and Mr. Kim regarding 610,000 BBK shares owned by Lee as follows:”.

5,200 small investors lost about 60B KRW

If the contract is authentic, it means candidate Lee possessed almost all the shares of BBK. In the contract, the selling price of 610,000 shares of BBK is disclosed as 4,999,995,000 KRW. Mr. Kim strongly argues that this contract proves the fact that candidate Lee is the real owner of BBK.

But Mr. Kim’s claims need some more verification. First, the authenticity of the contract itself and the seal of candidate Lee on it. Candidate Lee’s side claims that the seal on the document does not match any of the seals candidate Lee used around that time.

All the more critical is the content of the “circumstantial statement on a change of shares, etc.” Mr. Kim reported to the Namdaemun tax office himself. According to this statement, a company called eCapital (CEO Hong Jong-kook) possessed 600,000 shares (98.36%) of all BBK shares before May 9, 2000. Candidate Lee’s side claims “Candidate Lee did not have any BBK shares at that time and selling of shares that he did not even have does not make sense either.” Candidate Lee’s side also claims that Mr. Hong is also Mr. Kim’s aide.

But, the truth of the matter is not clear yet. When BBK officially applied for the investment consultancy in Sep. 28, 1999, Mr. Hong’s eCapital provided 3B KRW as the base capital. However, eCapital sold almost all the shares to ‘BBK Capital Partners Ltd.’ in a few months.

eCapital CEO Hong Jong-kook once said in a media interview “As far as I remember, at first, I decided to invest to BBK believing in Kim’s reputation but, as time went by, I was disappointed with the performance and withdrew all the investment fund in two separate times, 1.5B KRW at each time.” And he pointed BBK CEO Kim Kyoung-jun as the buyer the shares at those times. The day of transaction specified on the Korean contract is Feb. 21, 2000. How the shares of BBK that BBK bought back from eCapital became candidate Lee’s possession, how Mr. Hong is related with candidate Lee or Mr. Kim are all other items to be clarified in the whole BBK controversy.

If the authenticity of one Korean and three English contracts that Mr. Kim presented is confirmed and if they support Mr. Kim’s claims, then candidate Lee’s role and position in the course of cooperation with Mr. Kim will be considered from a whole new direction. What the Korean and English contracts reveal, Mr. Kim claims, is that shares candidate Lee possessed were sold to LKeBank and, through a circular transaction of shares mediated by 10B KRW, LKeBank of candidate Lee also owns eBank brokerage firm and BBK. The ‘colossal claim’ that candidate Lee, binding related firms under one holding company, controlled all these firms is emerging one of the biggest issues in the controversy of candidate Lee’s association with the stock price manipulation crime.

<Han Ki-hong 한기홍 편집위원 glutton4@naver.com>

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