[Chairman Moon Byung-kwon and ten executives, including ST Corporation CEO Moon Dae-ik, were indicted and detained
This morning, the prosecution announced the results of its investigation into the allegations uncovered so far, including accounting fraud within ST Group, unfair internal transactions, and a backdoor stock deal with JPMorgan.
According to prosecutors, Chairman Moon and others are accused of forging debt balance certificates under bank names and manipulating ST Global's 2001 financial statements to make it appear as though 1.1881 trillion won in liabilities did not exist.
In addition, the investigation revealed that ST Global had overstated retained earnings on its balance sheet by 1.5587 trillion won and understated its net loss on the income statement by 122.6 billion won.
The total amount of accounting fraud confirmed through this investigation stands at 1.5 trillion won, the largest ever recorded for a single company in the country.
Accordingly, the prosecution has detained and indicted Chairman Moon Byung-kwon and his close associate, Kim Do-hwan, head of the group's restructuring headquarters, on charges of violating the Act on the Aggravated Punishment of Specific Economic Crimes.
Other executives whose charges have been confirmed have been indicted without detention...]
Seok-won looked at the front-page article, accompanied by a black-and-white photograph of Chairman Moon Byung-kwon's hardened expression as he was escorted to the detention center, and muttered in a low voice.
"An indictment with detention… This is the worst possible outcome for ST Group."
With accounting fraud amounting to as much as 1.5 trillion won uncovered and various illegal activities brought to light, it was inevitable that prosecution and trial could not be avoided.
However, both ST Group and even the Federation of Korean Industries stepped forward, repeatedly making earnest appeals to the government and prosecutors in an effort to ensure that Chairman Moon Byung-kwon, the owner, could stand trial without being detained.
Despite that, Chairman Moon Byung-kwon was indicted under detention along with Kim Do-hwan, head of the restructuring division, while key executives—including Moon Dae-ik, CEO of ST Corporation—were successively sent to trial, making a management vacuum unavoidable.
Moreover, due to this incident, concerns grew that Chairman Moon would completely lose control of management and that ST Group might begin a process of dissolution, potentially being broken up into several companies like Hyundai Group.
"What the market and investors hate most is uncertainty."
As if proving that point, the moment the prosecution's announcement was made, the stock prices—which had slightly rebounded the previous day on rising expectations—immediately plunged.
ST Corporation, the holding company, went straight to the daily lower limit, while the rest of the ST Group stocks followed in a sharp decline.
In particular, the collapse of ST Telecom, the second-largest company by market capitalization, delivered such a massive shock that it dragged down not only ST Group stocks but the entire domestic stock market.
Turning his head, Seok-won saw the stock graphs of ST Corporation and its affiliates displayed across the six monitors on his desk, forming long, plunging bearish candlesticks as if falling off a cliff.
[ST: 5,440 (▼2,950)]
[ST Telecom: 113,500 (▼215,320)]
.
.
.
[Korea City Gas: 8,450 (▼120)]
Seeing that sell orders had flooded into ST Corporation, the holding company, and ST Global—where accounting fraud had been uncovered—driving prices down to the daily limit and halting trading, Seok-won's eyes gleamed.
Without hesitation, he reached out and picked up the office phone receiver installed on his desk, pressing a button.
After a few rings, the call connected, and the voice of Director Choi Ho-geun came through.
[Yes. This is Choi Ho-geun.]
"It's me."
[Ah, yes. Chairman.]
Recognizing him immediately upon hearing his voice, Director Choi Ho-geun responded at once, and Seok-won leaned back into the cushioned chair as he began to speak.
"You're aware that ST and Global have both hit the lower limit, right?"
[Of course. As soon as news broke of Chairman Moon Byung-kwon's detention and indictment, sell orders poured in all at once through UBS, Deutsche, Crédit Lyonnais, and Lehman Brothers channels.]
"How much did they sell?"
[From what we've confirmed so far, it's over 1.3 million shares.]
Adjusting the receiver in his hand, Seok-won continued,
"With that volume, it's more likely they're short-selling rather than simply cutting losses and exiting."
[I think the same. Considering that foreign investors have been steadily selling off ST Group stocks ever since the prosecution's search and seizure, there's no way such a large volume would still remain otherwise.]
Sharing the same thought, Seok-won lifted his gaze toward the ST Group stock charts, which were forming long bearish candlesticks, and a deep smile spread across his lips.
"Looks like they're trying to shake out retail investors with short selling—but they'll soon realize they've picked the wrong direction."
Director Choi Ho-geun chuckled softly in agreement.
[Once they realize—albeit belatedly—that a management control dispute has broken out, they'll scramble to cover their short positions. In that process, a short squeeze will occur, sending the stock price soaring. From our perspective, isn't that actually a good thing?]
A short squeeze refers to a situation where investors who bet on a price decline rush to buy back shares to limit their losses when prices surge unexpectedly, causing buying pressure to explode and the stock price to skyrocket.
With a faint smile, Seok-won spoke in a relaxed tone.
"If they keep shorting like this, it makes it easier for us to secure more shares at lower prices. Like you said, Director Choi—it's a win for us."
[Exactly.]
"How many shares have we acquired so far?"
[As of this morning, we've purchased 12 million shares.]
"Then we only need to accumulate another 730,000 shares to reach our target."
[That's correct.]
Seok-won fixed his gaze on the stock chart of ST Corporation, which had hit the lower limit and come to a halt amid a wave of panic-driven selling by investors combined with short selling.
"Since it hit the lower limit today, once trading resumes tomorrow, the decline will likely continue immediately."
[Unless some positive news emerges to reverse sentiment in the meantime, it will be difficult for the downtrend to break for a while. Moreover, since the stock hit the lower limit, if investors who hastily bought on margin fail to deposit additional collateral, securities firms are likely to dump their shares en masse the moment the market opens tomorrow, triggering large-scale forced liquidations. In that case, it will almost certainly open with a gap down.]
With the stock price of ST Group having fallen significantly due to a series of negative developments, many investors had viewed it as a buying opportunity at low prices and entered the market.
A considerable number of them, driven by the desire to score a big profit when the stock rebounded, had used margin trading to purchase far more shares than their actual capital allowed.
However, contrary to their expectations, the stock had plunged to the lower limit, and by now, they were likely receiving calls from their brokerage firms demanding additional margin deposits.
If they failed to provide the additional collateral, forced liquidation would take place the moment the market opened the next day, with the brokerage firms ruthlessly dumping all their shares at the lower limit.
"There should be quite a large volume coming out from forced liquidations."
[Since the stock price has fallen so sharply, margin buying balances have piled up not only in ST Corporation but across all ST Group stocks. If I had to guess, a significant portion will be liquidated through margin calls this time.]
While it was unfortunate for the investors who would be wiped out and left with nothing, it was also a perfect opportunity to scoop up a large volume of shares at low prices.
"Once trading resumes tomorrow, buy up all the sell orders that flood the market and fill the remaining target quantity in full."
[Understood.]
Director Choi Ho-geun then spoke carefully.
[There's one more thing I need to report.]
"Go ahead."
[Aside from us, we've detected movement through Hong Kong channels—someone is aggressively accumulating a large stake in ST Corporation.]
Hearing this, Seok-won straightened his posture while holding the receiver to his ear.
"Where is it coming from?"
[We haven't been able to confirm that yet. However, although the shares are being purchased through multiple channels, the pattern is consistent—it's clear that a single entity is accumulating a stake.]
A sharp glint flashed in Seok-won's eyes.
"Just as expected—it looks like a hostile takeover attempt aimed at management control has begun."
[That certainly seems to be the case.]
"Keep monitoring the movement, and for now, focus on completing our target stake acquisition."
[Understood.]
Then, as if something had just occurred to him, Seok-won added—
"Right—and you're making sure to spread out the purchases so we don't trigger the 5% rule, correct?"
[Yes. With assistance from the Eldorado Fund, we're acquiring shares in a distributed manner through five paper companies established in Hong Kong and the Virgin Islands, so you can rest assured.]
The so-called "5% rule" requires disclosure of the purpose of acquisition once a party acquires more than 5% of a company's shares.
It was a system introduced to prevent hostile takeovers (M&A) in which shares are secretly accumulated to seize management control.
Since Seok-won's involvement could not be exposed before a full-scale management control battle began, they were purchasing ST Corporation shares in divided portions below 5%, using paper companies rather than the asset management division.
"Then report to me immediately once all purchases are completed."
[Yes. Understood.]
After ending the call, Seok-won set down the receiver and stared at the ST Corporation stock window, which remained halted at the lower limit.
"Things are about to get quite interesting."
He muttered to himself in a low voice, a deep smile spreading across his face.
***
March 16, 2003, 9:30 a.m.
In the courtyard of a police station located in Sadr City—a Shiite Muslim residential area in northeastern Baghdad, Iraq—uniformed officers stood in formation for the morning roll call.
Abdel Hamed stood guard at the front gate checkpoint, which was surrounded by barbed wire and reinforced with stacked sandbags, an AK-47 rifle slung over his shoulder.
"Huaaam."
Overcome with drowsiness, he opened his mouth wide in a yawn. The colleague beside him gave him a subtle warning.
"The department head will be out soon for roll call. Don't get caught—at least pretend to stand properly."
Abdel Hamed glanced sideways toward the courtyard, where dust swirled in the air, and grumbled.
"Can't they just let it slide once in a while? Why do we have to do roll call every single day?"
"Tell me about it."
His colleague shrugged as he chimed in.
"Still, standing guard like this means we get to skip roll call, so it's not so bad."
"True enough."
Abdel Hamed let out a small chuckle.
Just as he was thinking about finishing his shift quickly and heading home to rest, a white GM Oldsmobile came into view in the distance, kicking up a cloud of dust as it approached.
"…?"
Narrowing his eyes, Hamed stepped out of the checkpoint and waved one arm, signaling the vehicle to stop.
But as the car rapidly closed the distance without slowing down at all, a sudden sense of foreboding washed over him.
"What the… why isn't it stopping?"
The face of the colleague beside him stiffened as well.
Abdel Hamed immediately raised his AK-47 into a firing stance and shouted loudly,
"Stop! If you don't stop, I'll shoot!"
Even so, the vehicle didn't slow down—instead, it accelerated and charged forward.
"Damn it!"
Gritting his teeth, Abdel Hamed aimed at the vehicle and pulled the trigger.
Tat-tat-tat-tat! Tat-tat-tat!
At the same time, the colleague inside the checkpoint—where sandbags were stacked up to waist height—hurriedly opened fire as well.
The barrage of bullets shattered the windshield and riddled the car's body with holes, turning it into a sieve in an instant. Yet the white Oldsmobile did not stop—it continued forward, smashing through the barricade blocking the front gate and barreling into the police station courtyard.
"Aaaagh!"
"R-run!"
The moment he saw the officers who had gathered for roll call scattering in all directions in panic, a sudden realization flashed through Abdel Hamed's mind, and his face turned pale in an instant.
"Shit—it's a suicide bombing! Get down!"
Shouting at the top of his lungs, he immediately spun around and threw himself into the sandbag fortification.
In that instant, a massive explosion erupted with a thunderous roar, shaking the ground as a blazing pillar of fire shot up from the center of the police station courtyard.