Corporate Fraud Drives Zalman to Bankruptcy
by E. Fylladitakis on November 6, 2014 11:35 AM EST- Posted in
- Cases/Cooling/PSUs
- Zalman
This month is not starting very well for technology enthusiasts. Most of us have fond memories of Zalman, a company that has been producing advanced cooling solutions since 1999. Some are old enough to remember the fan-like CNPS6000 Socket 370 coolers and the first Reserator liquid cooling kits. Zalman was one of the pioneers of low-noise cooling solutions, in an era when stock coolers were noisy enough to drive people insane. Unfortunately for us all, on November 3, 2014 the company filed a bankruptcy protection request in the Seoul Central District Court.
Zalman did not fall victim to recession, competition or even bad corporate management. The whole story is long, complicated, obscure and yet unconfirmed, so unfortunately we may never learn all the details of it. To summarize, Zalman apparently was part of an allegedly very well designed and planned multi-billion dollar corporate fraud.
Zalman is a child company of the robotics manufacturer Moneual. According to The Korea Times, Moneual failed to repay their (massive) export bonds that matured on October 20, 2014, and ultimately filed for bankruptcy. Ever since that incident, Zalman's stock price also began a quick downfall. However, the numbers just do not add up - Moneual has been repeatedly reporting major profits, with their 2013 annual report being nearly 1.2 billion dollars in sales and over 100 million dollars in profit. The local authorities naturally became very suspicious and initiated investigations, the preliminary reports of which indicate that there is evidence of a well-designed corporate fraud.
Long story short, Moneual allegedly acquired Zalman in 2011 as part of their master plan. They forged Zalman's export and accounting documents, greatly overstating their export and income reports, in order to become eligible for huge bank loans. What is even more interesting is an article posted by the Korea JoongAng Daily, where an employee claims that most of the employees knew that the company was a sham but, despite the unearthly profit reports of the past few years, no government officials raised an eyebrow.
During that time, Moneual received about 620 million dollars in loans from several Korean banks and another 275 million dollars as export credit from the Korea Trade Insurance Corp, making the owners of Moneual richer by nearly 900 million dollars, money that will likely never be repaid. They have been arrested and, alongside many top- and mid-level executives of the company, are now facing prison time. Unfortunately, the architects of this fraud may not receive what punishment they deserve; the CEO of Moneual has U.S. citizenship and his brother has Canadian, and there's some concerns that Korean law could face trouble prosecuting them.
Unfortunately, we have little confirmed information on the matter but, from the looks of it, no one from Zalman was involved in this fraud. Depending on the court's decision, there is the possibility that Zalman will be granted bankruptcy protection and severed from Moneual's control. However, even if that happens, Zalman will certainly not have the capabilities they used to and will most certainly struggle to compete on a global scale.
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dgingeri - Thursday, November 6, 2014 - link
Extradition from the US or Canada is very difficult, no matter the circumstances or proof. It involves many political hurdles, thanks to our politicians. As for the guy with US citizenship, our President and entire executive branch will likely protect him from extradition, considering his (illegally obtained) wealth.BTW, It wouldn't matter which party claimed by the Presidency, either would protect someone like this these days. That's why we had such widespread mortgage fraud in 2005-2008 and nobody was actually charged with any criminal wrongdoing. There was more than enough proof, and neither Michael Mukasey nor Eric Holder filed any charges against any of them.
Murloc - Thursday, November 6, 2014 - link
right, I remember a case where the US refused to extradite a member of the sicilian mafia to Italy because the 41bis prison regime constitutes torture according to their judges.alacard - Thursday, November 6, 2014 - link
Indeed, and what you're describing - systemic corruption - will eventually result in a total system crash. A system cannot stand when the incentive is to rob it blind because the consequences are either you have to pay back less than you stole with no admission of wrongdoing, thus pocketing the difference or - as in this case - you are shielded by other corrupt players in the position of power.The entire structure of our economy is being hollowed out by those meant to safeguard it in order to enrich themselves, and the incentives are all aligned toward that goal because wrongdoing is rewarded and protected. The end result will be the structure falling to pieces like a house of cards.
We all have a front row seat to a global system crash. The sad thing is we're not merely spectators, but participants.
dgingeri - Thursday, November 6, 2014 - link
The big problem is that a free market would save the economy from a crash. The constant regulation is what is empowering the government corruption. Eliminate the power of the government, and the corruption goes away. Then the power of the buyers in the market makes the corruption go away in the market side. (We just have to make sure and only buy from reputable sources.)alacard - Thursday, November 6, 2014 - link
"and the corruption goes away"Whatever you're smoking, i'd like some of it please.
The natural state of humanity is slavery and decay. The only thing standing in the way of that is the rule of law (regulation). Most of our time here on this planet has been spent under the rule of a feudal or slavery based economy, with only a few glimmers of equality scattered throughout history which were enabled by the rule of law.
Take that order out of the equation and everything becomes chaos. Do you really believe that the Free Market is invulnerable to corruption? That those who win in that area won't immediately consolidate their power, lower wages to nothing, and destroy their competition, thereby destroying the free market? Is the concept of the free market itself so noble that its participants magically just decide to cast off their human nature?
Your libertarianism is absurd magical thinking that completely ignores human nature. Without the rule of law - without regulation - people become animals.
chizow - Thursday, November 6, 2014 - link
Hehe precisely, some of these libertarians need to spend some time in parts of west/central Africa and the destabilized Middle East to see what life is like without a strong central government or even a military dictatorship.Roving bands of marauders, local warchiefs, mass atrocities, and general lawlessness. Good times indeed which is amazing given we are well into the 21st century!
santiagodraco - Friday, March 27, 2015 - link
If the person is a US citizen you'd expect them to be protected by due process just as you'd expect yourself to be protected. Once you are extradited there's pretty much nothing that can be done if you were wrongfully accused in another country. Don't be so quick to judge the US or it's "political hurdles".name99 - Friday, November 7, 2014 - link
Hell, forget extradition. In the US fraud that involves mortgages is not even (apparently) a criminal offense. In general the US mostly cares buggerall about white collar fraud.piiman - Saturday, November 8, 2014 - link
Yes but since we don't like to prosecute Corporate CEO's for Corporate fraud we'll probably not honor the extradition request.rhx123 - Thursday, November 6, 2014 - link
How sad.