[EDITORIALS]Bad Apples Spoiling a Vital Activity

The scandal surrounding Lee Yong-ho, chairman of G&G, a corporate restructuring firm, is an example of how Korea's restructuring effort has been abused. Mr. Lee illegally sold stock owned by G&G to its affiliate, Samae Indus. Mr. Lee has been charged with manipulating stock prices, using his corporate restructuring company.

Corporate restructuring companies were introduced in Korea in 1999 to retool ailing businesses, essential to the revival of our economy, after the foreign exchange crisis hit in late 1997. These firms earn money by taking over shaky concerns, improving the business, enhancing corporate value and then reselling the firms to new owners. A corporate restructuring firm needs only 3 billion won ($2.3 million) of capital to start its operation; the government provides tax benefits to such company, including exemptions from capital gains taxes on stock transfers and allowing part of investments to be listed as tax-deductible expenses. Consequently, corporate restructuring firms sprang up like mushrooms; 88 firms are in the business.

In the face of a sagging economy and tumbling stock markets, many of them, such as G&G, are focusing on short-term gains, ignoring their original purpose.

After acquiring troubled firms, the restructuring vehicles often change company names and revise the articles of incorporation, adding some plausible business lines, like biotechnology, to boost stock prices. Their aim is making a profit, not restructuring. In the course of these actions, the firms waste taxpayers' money and investors suffer financially.

The government should hasten to come up with legal and administrative measures to prevent these ill effects. It should conduct site investigations to determine if the restructuring vehicles are actually doing their jobs. The government should weed out unqualified firms to encourage the positive conduct of those entities leading the restructuring of our economy.