The White Tiger Fund
The chaebol dismantler — Financial Supervisory Service catches Daeho Group accounting fraud — Scale already exceeds 10 trillion won. — Daeho Group corporate bond discount rates surge — Chills government plans to issue foreign exchange stabilization bonds, pessimistic forecasts grow. — Board of Audit and Inspection requests late travel ban on Chairman Kim O-jung. — Chairman Kim O-jung already en route to Europe.
Korea, locked in an extreme standoff between the Blue House, the ruling party, the opposition, and vested interests over the establishment of the Gongsucheo, was thrown into nationwide shock by Daeho Group’s accounting fraud. The scale of the fraud was staggering, but the timing made it worse. Had this not been the IMF era, the matter might have been quietly buried. A suspended sentence, a fine, a few perfunctory bows of apology — and it would have ended there. But this was the IMF regime. The government was carrying out ruthless restructuring under IMF directives, and a series of measures were being implemented to ensure transparency in the financial sector. For Koreans who knew Daeho Group’s stature, this was unthinkable.
Naturally, breaking news about Daeho Group flooded Korean media. The public was stunned. After the launch of the Jeon Myeong-heon administration, people had begun to feel things were improving — only for the bankruptcy of the giant chaebol to become reality. The revelation that the accounting fraud exceeded 10 trillion won left everyone reeling.
“Two years earlier than in the original history, I suppose?”
Yet only one person, Yoo Jae-won, watched the breaking news with perfect composure. He knew Daeho Group’s history well. He remembered exactly when it would collapse. In the original timeline, Daeho had begun to falter the following year, with its insolvency fully exposed and the group falling two years later. Now the Daeho crisis had arrived early — entirely because of the changes Yoo Jae-won himself had set in motion. As a historical variable in his own right, his existence alone was enough, but President Jeon Myeong-heon was another unprecedented factor. With the Jeon Myeong-heon administration came the Financial Supervisory Service, tasked with normalizing the financial markets during the IMF era. The first chairman bore enormous pressure and was expected to deliver.
“The Financial Supervisory Service chairman seems to be quite capable after all.”
Praise from Yoo Jae-won, who had long doubted the competence of Korean bureaucrats. The chairman of the Financial Supervisory Commission, newly created under the Jeon Myeong-heon administration, was someone Yoo Jae-won did not know. Appointment power belonged solely to the president, so Yoo Jae-won had not interfered. Instead, he had drawn the larger picture for clearing the IMF crisis and given Jeon Myeong-heon solid advice for success as president, along with his own grand vision. Jeon Myeong-heon had been completely won over, and Yoo Jae-won had expected new appointees to be chosen in line with that direction. Because his expectations had been modest, the early discovery of Daeho’s accounting fraud — two full years ahead of schedule — was a remarkable achievement. Of course, Yoo Jae-won’s own influence had played a role. In his Time interview, he had directly targeted the insolvency of both Daeho and Ilseong. A world-class Korean entrepreneur publicly declaring as much in Time meant that even if Daeho denied everything, suspicion was inevitable. The Financial Supervisory Service had a duty to resolve those doubts and, for the sake of normalizing the banks, had to accurately assess their non-performing loans and carry out restructuring. During the asset inspection process, the banks discovered the true nature of the massive loans they had extended to Daeho Group. Verification revealed that the collateral pledged for those loans was questionable. In some cases, Daeho had used the same collateral to secure loans from multiple banks. Moreover, the collateral had been overvalued, and the loans exceeded the actual value of the assets. It was corporate-scale loan fraud, executed with deliberate intent.
This forced an intensive investigation into Daeho Group, and President Jeon Myeong-heon lent his full support. Thanks to that, Daeho’s accounting fraud was exposed two years earlier than scheduled.
“Still, the investigation seems incomplete. Only 10 trillion won?”
Yoo Jae-won knew the true scale of Daeho Group’s accounting fraud was 40 trillion won. Discovering it two years early meant the recorded losses would be smaller, but they were clearly far larger than 10 trillion won.
The Tiffany phone rang while Yoo Jae-won was monitoring public opinion through the Nextcom news page and the ID Group intelligence team’s bulletin board. The caller ID showed Jeon Myeong-heon.
“Cutting out the rot will hurt now, but it’s far better in the long run.”
— You’re right.
Jeon Myeong-heon’s voice was heavy. He was agonizing over how to handle Daeho, a massive corporate group that directly employed hundreds of thousands and, including subcontractors, affected millions. Yoo Jae-won’s proposal was straightforward: no special treatment, follow legal procedures — in other words, let Daeho Group go bankrupt. Jeon Myeong-heon had hesitated, but after hearing Yoo Jae-won, he had made up his mind. Born an entrepreneur himself, Jeon Myeong-heon had struggled immensely with the decision to dismantle Daeho. Yet allowing a hopeless company to survive by wasting tax money was not the answer; cutting it away now, however painful, was the correct choice.
“That doesn’t mean we should dismantle everything indiscriminately. While Daeho Group looks rotten overall, it still has sound subsidiaries.”
— True.
“So we should separate the subsidiaries to be liquidated from those worth saving, minimizing the shock of dissolution. And even for those we decide to revive, we must be extremely cautious about injecting public funds.”
Yoo Jae-won’s words were textbook correct. The goal was to dismantle the chaebol structure, not to destroy large corporations themselves. Korea had reached this point precisely because it had failed to grasp even this simple truth.
— Of course. I’ve been watching that fellow O-jung ever since he started talking about “global management” or whatever he called it. This year, Daeho Group’s policy was still global expansion. Chairman Kim O-jung of Daeho Group, who constantly repeated that the world was wide and there was much to do, had kept his word to the letter. To enter global markets, he established branches in countries from Eastern Europe to the United States, and in Korea he never missed a bid for Kia Motors. Quantitative expansion naturally brought financial weakness. He must have known Daeho lacked the strength to sustain it, yet he pushed forward anyway. He had something to rely on: public funds. Like other chaebol owners, he firmly believed in the myth that large corporations were too big to fail. The conviction that waving the magic wand of public funds would solve any crisis was deeply ingrained in their bones.
— And public funds aren’t even their own pocket money. Hiding this kind of insolvency and then asking the country for money — what kind of nonsense is that?
Jeon Myeong-heon did not hide his anger. Mirae Group, following Yoo Jae-won’s advice, had made desperate efforts to secure financial soundness even before the IMF crisis. As a result, most of its subsidiaries had weathered the foreign exchange crisis without major damage. They were barely holding on, but they were surviving. Mirae Electronics, for example, was suffering terribly from the daily drop in DRAM prices. Just a year earlier, profitability had been excellent. Record-breaking results had allowed hundreds of percent bonuses for all employees. This year, however, DRAM prices had plummeted. Demand had fallen sharply after the PC generational transition. Factories could not be shut down, so the group was pursuing a high-volume, low-margin strategy — producing more and selling cheaper. Other subsidiaries were forced to export at near-cost prices to secure dollars. While other companies used the IMF crisis as an excuse to aggressively restructure, Mirae Group had to watch Jeon Myeong-heon’s political position and could not easily reduce headcount. Large-scale layoffs under a sitting president would inevitably draw criticism from both the political world and the public. After tightening their belts to this extent, it was impossible to look kindly on Daeho Group, which had engaged in reckless management and now demanded public funds because the money had run out. Furthermore, the purpose of public funds was to support the restructuring of banks and companies. The funds were raised by the Korea Deposit Insurance Corporation and the Korea Asset Management Corporation issuing bonds, with the government providing payment guarantees after obtaining National Assembly approval. Though the issuance method differed slightly, they were essentially government bonds. For companies, it was as if the government were guaranteeing and lending the money, so there was no hesitation in borrowing public funds. Government economic officials, believing that the collapse of large corporations would doom the nation, had no qualms about disbursing public funds liberally.
— I will make it absolutely clear that the world has changed.
Jeon Myeong-heon’s resolve was diamond-hard. At the same time, Yoo Jae-won felt the time to unveil the White Tiger Fund was approaching.
A few days later.
— Blue House: Daeho Group issue to be resolved according to due process.
— Blue House: Now is not the time to talk about public funds!
— Daeho Group creditors begin workout procedures.
The Blue House issued a statement on the rapidly unfolding Daeho Group accounting fraud scandal. True to the resolve Jeon Myeong-heon had shown during his call with Yoo Jae-won, it was firm. “Due process” meant the dismantling of Daeho Group. The creditor banks — which had lent enormous sums to Daeho — immediately launched workout procedures upon realizing the government’s stance would not change. They had begun a desperate survival game to recover their loans. The banks were under intense pressure. Mergers and acquisitions of regional banks were already underway, and large-scale bank consolidations were now imminent. Daeho Group’s accounting fraud and non-performing loans had been exposed, with more bad loans expected to surface. The good times were over. The era when banks received lavish entertainment and pocket money from corporations in exchange for acting as their private vaults was finished. In the bubble economy, even reckless loans rarely missed maturity. Since lending was banks’ main profit model, it had translated directly into performance evaluations for bank presidents. It had been a mutually beneficial arrangement. Now that era had ended, and most of those carelessly extended loans had become non-performing assets. If the banks failed to recover the money, they themselves would disappear. They fought with everything they had.
In addition, the Financial Supervisory Service filed complaints against the working-level staff and executives who had overseen the loans to Daeho Group, as well as Chairman Kim O-jung and other key figures in the group. The prosecution moved swiftly. They, too, were filled with pent-up resentment. President Jeon Myeong-heon had been pushing the establishment of the Gongsucheo like a bulldozer until yesterday. Thanks to him, the National Assembly was rapidly discussing its creation under the leadership of the Tongil National Party and the Democratic Party. The more this progressed, the more the prosecution’s resentment grew. The core of the Gongsucheo directly threatened the prosecution’s monopoly on warrant requests and indictment powers. Moreover, whenever the prosecution investigated high-ranking officials, they had enjoyed various benefits; with the Gongsucheo in place, the old practice of judicial deals — where “good things are good for everyone” — would end. Finally, the Supreme Prosecutors’ Office’s Central Investigation Department, once the pinnacle of prosecutorial power, would be reduced to a hollow shell. To prevent this, the prosecution urgently needed to prove its own relevance and restore public trust. The Daeho Group accounting fraud had erupted at the perfect moment, and they moved with alacrity.
— Now is the time for bold decisions! Better to fix the barn after losing the cow than not at all.
— On-site report: The frozen Incheon industrial complex.
— Incheon industrial complex, home to Daeho Group subsidiaries and partners, comes to a complete halt.
— Foreign exchange stabilization bond issuance fails! Target was 4 billion, but only a little over 2 billion contracted.
— Moody’s and other credit agencies maintain credit ratings, will monitor Daeho Group handling.
The media sensed an opportunity. The government’s decision would, in the short term, create massive unemployment. Naturally, many people would be directly affected in their daily lives. The media highlighted this and launched a counterattack. Although the conventional honeymoon period had not yet ended, with the Improper Solicitation and Graft Act already passed, they began an all-out war without hesitation. Public opinion stirred under the storm of media articles, and opposition politicians, emboldened, began to speak out one by one. They argued that with the sin of causing the IMF crisis still fresh, the government should be lying low, not letting a “too-big-to-fail” company collapse. By late April, even President Jeon Myeong-heon’s soaring approval ratings had been affected, raising concerns that the pace of reform might slow.
Yoo Jae-won appeared before reporters for the first time in a while. The location was the ID Investment Building in Manhattan, New York. American economic journalists and Korean correspondents were already packed inside. Whenever Yoo Jae-won moved, something enormous happened, so everyone expected another exclusive.
“Recently, ID Group has received numerous inquiries from investors and journalists. Many asked whether we would maintain our investment plans in Korea despite the Daeho Group situation. I have arranged this press conference to answer those questions.”
Once again, Yoo Jae-won satisfied the reporters’ expectations.
“To give you the conclusion first: yes, we will. And regarding the timing of the investment — it is right now. I have completely liquidated my positions in Nasdaq. With those funds, I have established the White Tiger Fund, with a scale of 23 billion dollars, as I mentioned in Time. The operational team will soon enter Korea and begin contacting companies that have expressed willingness to sell.”
The original plan had been 20 billion dollars; an additional 3 billion had been added. The reason was simple. Even after announcing the White Tiger Fund concept in Time, Nasdaq’s upward trend had not stopped. As a result, even as Yoo Jae-won began selling his large holdings, stock prices continued to rise, generating an unexpected additional profit of approximately 3 billion dollars. He decided to add this windfall to the White Tiger Fund as well. Consequently, the fund’s total capital was finalized at 23 billion dollars.
Korean companies struggling with millions of dollars in foreign debt were so shocked by the sheer scale that reality momentarily felt unreal.