The encyclopedia · Finance & Accounting · Financial decision · 2013–2019
Lotte Group's family war cost investors ₩1T+ in fraud and market damage
A feud between founder Shin Kyuk-ho's two sons triggered a ₩375 billion embezzlement probe, a ₩1.2 trillion market drop, and one son's imprisonment.
Lotte Corporation
What happened
Lotte Group, South Korea's fifth-largest conglomerate with 80+ subsidiaries from confectionery to hotels, was controlled by founder Shin Kyuk-ho. In 2013, with Shin's health declining, he designated eldest son Shin Dong-joo as successor. But the younger son Shin Dong-bin resisted, and a bitter power struggle erupted.
In June 2016, 240 prosecutors raided 17 Lotte offices, uncovering a systemic fraud: ₩146 billion embezzled by the founder and his children, ₩115 billion in inheritance tax evasion, ₩30 billion in slush funds funnelled through suppliers, and ₩22 billion in corporate tax avoidance. Vice Chairman Lee In-won died by suicide hours before he was to be questioned.
The scandal erased ₩1.21 trillion in market value in four days — a 15.8% drop. Lotte withdrew its Hotel Lotte IPO, which was set to raise up to ₩5.2 trillion and would have been Korea's largest. Founder Shin Kyuk-ho was sentenced to four years in prison; chairman Shin Dong-bin was convicted of embezzlement and later jailed for two and a half years for bribing President Park Geun-hye's confidante.
Why it happened
- The founder designated a successor without transferring control, creating a power vacuum that turned the two sons into rivals. Governance froze with neither brother able to consolidate.
- Decades of opaque conglomerate structure let the family move money between subsidiaries with no oversight — suppliers were overpaid, and cash was diverted to personal and political slush funds.
- The founder's health decline and unclear succession exposed every hidden practice. A smooth transition might have contained the damage; the fight for control brought 240 prosecutors.
The lesson
A founder who does not choose when to hand over control has chosen a crisis — the successor fight becomes a forensic audit, and every hidden practice comes out in court.
Sources
- Lotte Corporation — Wikipedia
- DECODED: Lotte crisis revolves around family affairs — The Korea Herald
- Lotte's hidden cash, ledgers found — The Korea Herald
- Five Lotte family members indicted for 375.5B won embezzlement — The Korea Herald
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