[News Space=Reporter seungwon lee] It has been confirmed that Lee Jae-hwan, Chairman of Jaesan Holdings and former Vice Chairman of CJ Group and younger brother of CJ Group Chairman Lee Jae-hyun, has been indicted on charges of ‘fraud under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Special Act)’ surrounding the trading of stocks of Cytogen, a KOSDAQ-listed company.

 

According to an exclusive report by Sisa Journal on the 15th, he is accused of signing a contract to transfer stocks of a KOSDAQ-listed company, receiving a deposit, and then disappearing without handing over the shares.

 

This incident has once again brought to light the investment structure intertwined with funds from Ra Deok-yeon, the architect of the SG Securities stock price crash, and the shadow of the Korean liquid biopsy (blood-based cancer diagnostics) market. This case is being evaluated as a case that goes beyond a simple individual dispute and clearly exposes the vulnerabilities of the Korean capital market, where large-scale owner families, their close associates known as "safekeepers," and high-risk private equity structures intersect.

 

Cytogen's block deal, spearheaded by a "safekeeper," is suspected of disappearing after receiving only the deposit.

 

According to the complaint and statements from related parties, four investment funds—Golden Cloud 2, Heritage 2, Heritage 3, and Greenwood 2—received a proposal to acquire Cytogen's existing shares from Mr. Yoon of Jaesan Holdings in early 2023. Mr. Yoon was hired as the CEO of Jaesan Holdings in late 2019 and has been overseeing Chairman Lee's asset management and investments. He is known as the "safekeeper" of the owner's personal assets.

 

The two parties entered into a contract to purchase 800,000 shares of Cytogen stock for approximately KRW 6.4 billion, which was lower than the market price, on two occasions. The investment association paid KRW 640 million as a deposit. However, the plaintiff claims that Yoon cut off contact with the investor afterward, citing a lien on the stock account, without actually transferring the shares.

 

The architect of the SG stock price crash, Ra Deok-yeon, Ascent Bio Fund, and the timing of the exit.

 

The background to this incident lies with Cytogen, a liquid biopsy company listed on the KOSDAQ in 2018. The company possesses technology for diagnosing cancer based on circulating tumor cells (CTCs) in the blood. It is a native biotechnology company that has been growing its presence in the CTC field through collaborations with global pharmaceutical companies such as Daiichi Sankyo of Japan.

 

This chairman, along with former Hoan Investment Consulting CEO Ra Deok-yeon, who was identified as a key figure in the stock price crash triggered by SG Securities, created Ascent Bio Fund (formerly Jeil Bio Fund) and invested in Cytogen. As of the end of 2023, this fund rose to become the second largest shareholder with approximately 20.5% of Cytogen's shares, but exited in December 2023 by selling all shares to Hong Kong-based CandyX Holdings in a block deal worth approximately KRW 55 billion.

 

In the SG stock price crash, Ra Deok-yeon was indicted on charges of artificially raising the stock prices of eight listed companies and making illicit profits totaling 700 billion won over several years. He was sentenced to 25 years in prison, a fine of 140 billion won, and a surcharge of 190 billion won in the first trial, but the scope of stock price manipulation was partially reduced in the appeal trial, and the sentence was significantly reduced to 8 years in prison.

 

However, the appellate court stated that “further investigation is still needed into the direct cause and actual benefit of the stock price plunge,” leaving questions about the network of funds and accounts linked to the Radukyeon organization.

 

If the Special Act on Fraud is applied, a sentence of up to 10 years or more may be imposed.

 

This complaint was filed not for simple fraud under the Criminal Act, but for fraud under the Special Act on the Punishment of Crimes. The Special Act imposes increased penalties for economic crimes such as fraud, embezzlement, and breach of trust when the amount of damage exceeds 500 million won. For damages between 500 million won and 5 billion won, the standard sentencing range is three years or more in prison. For damages exceeding 5 billion won, the maximum sentence is five years or more, up to life imprisonment.

 

As the plaintiffs' union has announced that they will seek a total of 2.56 billion won, including 640 million won in deposit and 1.92 billion won in penalty, in a civil suit separate from the criminal complaint, the legal community predicts that the extent of the Special Act and the statutory penalty may vary significantly depending on how much actual damages are recognized.

 

During police questioning, Mr. Yoon reportedly stated, "I was informed in advance that the stocks were pledged, and the transaction fell through due to the plaintiff's failure to pay the balance." The plaintiff, on the other hand, contends, "At the time of the contract, I was not informed of the pledge at all, and from the outset, I attempted to embezzle the deposit without the intention or ability to transfer the stocks." They argue that the transaction could not have been completed without Chairman Lee's direction, or at least his assistance.

 

CJ Owner's Third-Generation Risks and Cracks in Trust in the Private Equity and Bio Markets

 

After Chairman Lee stepped down from the front lines of CJ Group management due to the past controversy over 'bullying', embezzlement, breach of trust, and drug involvement, he established Jaesan Holdings, in which he holds 100% of the shares, and began investing in new businesses such as bio and content. As this investment company was designated as a CJ affiliate under the Fair Trade Act, it has been attracting attention as a 'separate investment platform for the third generation of owners.'

 

The CJ family's disclosure of their investment in Cytogen and the potential for management involvement were once considered a growth story in the securities industry, giving the company a "governance premium." However, with the bio fund structure tied to Radukyeon, which triggered the SG Bal scandal, undisclosed transactions between private equity funds using listed company shares as collateral, and the recent fraud lawsuit controversy, some are now pointing out that the private equity and bio investment structure surrounding the CJ family itself is eroding market confidence.

 

The global liquid biopsy market is growing rapidly, recording double-digit annual growth rates and projected to reach around $30 billion by 2030. In Korea, companies developing diagnostic technologies based on CTCs and cfDNA (circulating tumor DNA) are also emerging. However, concerns are being raised that if technological challenges, clinical trial and regulatory risks, and the recent Cytogen case, involving ownership families and private equity structures, continue, restoring investor confidence in the domestic capital market and biotechnology industry could become even more challenging.

 

Depending on the results of the investigation, there is a possibility of simultaneous expansion of the "owner's responsibility" and civil front.

 

Police began investigating Chairman Lee and Mr. Yoon in May of this year, summoning them for questioning twice in July and September, respectively. Chairman Lee maintains that "the transactions were personally conducted by Mr. Yoon." The results of the account tracking requested by the plaintiff and the actual involvement, including instructions and reporting, are expected to be key issues in the future indictment decision.

 

The plaintiffs' union plans to file a civil suit based on the clause in the Cytogen stock purchase agreement stating that "upon termination of contract, return of purchase price and 30% of purchase price in damages" will be required, depending on the results of the criminal investigation. Interest is also growing in how the court will divide the scope of liability depending on whether the defendant is the owner individually, the asset holding corporation, or both.

 

Although Jaesan Holdings stated, "We will reveal our position after looking into the matter," they have yet to release an official statement, and it is reported that it is unclear whether Jaesan Holdings' office is even operational.

 

This case represents a symbolic juncture, where the aftershocks of the SG-led stock market crash, the rapidly growing liquid biopsy market, and the risks facing the CJ Group's third-generation owners intersect. The prevailing view among market participants and legal experts is that, depending on the outcome of the investigation and trial, it's difficult to rule out the possibility of a "second wave" targeting the private equity investment practices of Korean conglomerates and the governance structures of listed companies.

 

CJ Group is also on edge over Lee Jae-hwan's risk... Following embezzlement, breach of trust, and drug charges, controversy over abuse of power and secretary-involved interview.

 

Meanwhile, this incident has once again intensified public criticism of the CJ Group's ownership family's "corporate privatization." This comes after CJ Group Chairman Lee Jae-hyun and CJ CheilJedang Vice President Lee Sun-ho were previously criticized for tax evasion, embezzlement, breach of trust, and drug smuggling and administration, respectively. Chairman Lee's younger brother, former Vice Chairman Lee Jae-hwan, was also convicted of low-level embezzlement, including using company funds to purchase a yacht and campervan. 

 

With the youngest son of the late CJ Group Honorary Chairman Lee Maeng-hee once again facing legal punishment, there are criticisms that the significance of ESG management, which CJ Group has emphasized, is fading.

 

In 2016, the former vice chairman purchased a yacht for personal use with 1.4 billion won in company funds. Between 2012 and 2013, he also purchased a passenger car worth approximately 110 million won and a camper van worth approximately 150 million won with company funds. Furthermore, it was revealed that he effectively employed his personal secretaries as personal assistants, housing them in accommodations near the company residence and accompanying them on private outings like massages and saunas, paying their salaries with company funds.

 

Furthermore, allegations surfaced that during the 2021 interview process for his personal secretary, the former CEO displayed inappropriate language and behavior toward female applicants, including asking them to "show me your feet" and suggesting "private meetings." According to testimonies from applicants, the former CEO reportedly asked female applicants during interviews to "take off your shoes and show me your feet," "what size are your feet?", "do you have a boyfriend?", and "show me a picture of your younger sister."

 

The former CEO also requested private meetings with some applicants, saying things like, "Let's have dinner and go for a drive," and "Let's meet again later in casual attire." Furthermore, he personally provided some applicants with his phone number. One applicant described the situation, saying, "(The former CEO) personally entered unknown numbers into the applicants' phones. None of them wanted it, but he insisted that they answer if he called."

 

This former CEO sparked a similar controversy in 2018. He was criticized for demanding that a secretary "stand up and turn around" during an interview, and for ordering her to perform shoulder massages and sing songs. He was also criticized for other abusive behavior, such as ordering a personal secretary to "get a woman's number" and ordering her to clean the paperwork he had written.