TOKYO -- Though the Lotte group has avoided the arrest of its chairman for now, all is far from well at the Japanese-South Korean conglomerate, with malfeasance allegations hanging over the founding family and a feud over the Japanese operations still simmering.

Chairman Shin Dong-bin, the head of the group's South Korean business, is suspected of inflicting losses on group companies during overseas acquisitions and being involved in slush fund creation at Lotte Engineering & Construction and elsewhere.

Seoul opened an investigation in June. More than 300 people have been questioned in addition to Shin himself, including Shin's father, Lotte group founder Shin Kyuk-ho, and older brother Shin Dong-joo.

Shin Young-ja, Shin Kyuk-ho's oldest daughter and executive director of the Lotte Scholarship Foundation, was arrested in July on charges of embezzlement and breach of trust, a move likely intended to help get a handle on where the money went. The investigation extended to people close to Shin Dong-bin. Lee In-won, vice chairman of Lotte's South Korean operations, apparently killed himself in August shortly before he was to be questioned by prosecutors.

With the investigation in its final stages, prosecutors sought an arrest warrant Sept. 26 for Shin Dong-bin on suspicion of embezzlement and breach of trust, since the slush fund issue had not been fully brought to light. A Seoul Central District Court judge turned down the request Thursday.

All in the family

Founded in Japan in 1948, Lotte initially focused on gum and chocolates before massively expanding its business portfolio after entering South Korea in the 1960s. It retained a relatively narrow focus in Japan, centering on confectionery and professional baseball. But in South Korea, it became a conglomerate involved in such wide-ranging fields as logistics, chemicals and food. Lotte now earns more than 20 times as much revenue in South Korea as in Japan.

The two countries' operations are run by different management teams and have little to do with each other. The common thread was the leadership of Shin Kyuk-ho. The founder dictated "everything from the taste of products to promotional campaigns at stores," said a former Lotte staffer from the 1970s.

The aging patriarch, who was born in 1922, eventually passed on duties to the next generation, with older son Shin Dong-joo taking the reins in Japan and younger son Shin Dong-bin in South Korea. This arrangement was upended in January 2015, when Shin Dong-joo was ousted from positions including vice chairman of Lotte Holdings, putting leadership of both Lottes in the hands of Shin Dong-bin. The older brother tried to return to management, sparking a family feud that also swept up Shin Kyuk-ho.

Shin Dong-joo, effectively the largest shareholder of the unlisted Lotte Holdings, requested the dismissal of Shin Dong-bin and other officials and his own reappointment at an extraordinary shareholders meeting this past March as well as a regular meeting in June. The proposals were voted down by a majority at both meetings.

Published Date:2016-10-03