Lotte suspected of giving favors to founder’s third wife

This photo filed on June 17, 2016, shows a coffee shop located on the 13th floor of Lotte Department Store in downtown Seoul, which is operated by food franchise company Yuki Co., controlled by Lotte founder Shin Kyuk-ho’s third wife Seo Mi-kyung.

SEOUL, (Yonhap) — The Lotte Group is suspected of giving business favors to a company controlled by its founder’s third wife Seo Mi-kyung, who is on the list of those being investigated as part of the retail giant’s slush fund allegations, industry watchers said Friday.

The 57-year-old Seo is the 1977 winner of the group’s Miss Lotte beauty pageant and has a 33-year-old daughter with Lotte founder Shin Kyuk-ho, now 93. Under South Korea’s monogamous marriage system, the two have been common-law married.

Seo came into the limelight recently as prosecutors have widened their probe into South Korea’s fifth-largest conglomerate on suspicions of embezzlement and creating slush funds through dubious deals with affiliates and companies with links to the owner family.

Among them is Yuki Co., a Seoul-based food franchise company that operates seven restaurants in Lotte Department stores.

Seo’s relative is heading the company, but Seo and her daughter hold majority ownership of the limited company, which is registered as a real estate rental, interior design, supermarket operation, securities investment, leisure, retail and food franchise business.

Out of 12.5 billion won (US$10.5 million) in sales last year, most of the revenue came from its restaurants in Lotte Department Store’s food courts.

How much commission Yuki pays to Lotte Department Store remains undisclosed, but market watchers expect the rate is below market average due to her relationship with the founder.

Prosecutors have raised suspicions that the founder may have created a slush fund in the process of giving orders to the company and other contracts with relation to Seo.

“The relations between some affiliates and Yuki have not been completely severed,” a senior Lotte official said, asking for anonymity due to the sensitivity of the issue. “We expect it to gradually improve.”

Meanwhile, the whereabouts of Lotte Capital Co. Chairman Masamoto Kobayashi are drawing the attention of prosecutors amid allegations that he helped Lotte Chairman Shin Dong-bin, the second son of group founder Shin, through the recent management feud with his brother.

The 67-year-old Japanese chief is considered one of the close confidants of Dong-bin along with Takayuki Tsukuda, chief of Lotte Holdings Co., the holding company of Lotte’s far-flung operations in South Korea and Japan.

“I believe Kobayashi recently departed for Japan for business purposes and is currently staying in Japan,” said a Lotte Group official. “I do not know the exact date of the departure.”

An industry source also said, “Kobayashi holds the key to Lotte’s management feud and other key issues surrounding the group,” speculating that he might have left for Japan to avoid the prosecution probe.