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SK group owner jailed on charges of fraud

Chairman of SK Corp Chey Tae-won arrives at court for his trial yesterday. PHOTO: REUTERS

SK Group owner Chey Tae Won was jailed for three years by a South Korean court on fraud charges relating to an accounting scandal at its trading arm, sending shares and bonds in the group's listed units soaring.

Chey, who has been in custody since February, is the nephew of the late founder of SK, Korea's fourth-largest business group.

Nine other SK Group executives, including Chairman Son Kil Seung and SK Corp. President Kim Chang Keun also were found guilty but drew suspended sentences.

The sentence came as a surprise in Korea, where the country's media had raised expectations Chey would be released.

SK Corp stock rallied by its daily 15 percent limit after the announcement, while the difference in yield between the company's dollar debt and US Treasuries tightened.

"This is a big surprise," said Namuh Rhee, the managing partner at Rhee Capital Advisers, which has about US$30 million in Korean stocks. "The verdict shows that Korean society wants to end the past legacy and the judges are making independent decisions."

Shares in SK Corp, the nation's largest oil refiner, surged as much as 15 percent to 11,700 after the verdict. SK Telecom Co, Korea's largest mobile phone operator, gained as much as 6.6 percent to 201,000 won.

Investors had seen the case as a test of Korea's pledges to crack down on corporate corruption and fraud.

"Is it good? Yes, because if you do wrong and are found guilty, there's a penalty," said Markus Rosgen, Asian equity strategist at ING Securities Ltd in Hong Kong. "This will help to lower the risk premium of investing in Korea, so it's good for equities."

The decision is also likely to have an impact on SK Corp directors, who are due to meet on Sunday to approve the company's proposed bailout for ailing affiliate SK Global Co, the trading arm at the center of the accounting scandal.

The board's decision on Sunday whether to rescue ailing SK Global will influence the crucial meeting of SK Global's 59 Korean lenders next week.

On Tuesday, creditors will vote on whether to convert about half of what they are owed into equity in the trading company, creditor officials said.
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