UPDATE 2-SK Holdings chief jailed as S.Korea gets tough on chaebol

Thu Jan 31, 2013 3:15am EST

* SK Holdings chief Chey receives 4-year prison term

* SK Group says to appeal against the ruling

* President-elect says powerful and rich can't skirt law

* SK Holdings shares close down nearly 3 pct prior to ruling (Adds more details, SK comments, background)

By Joyce Lee and Daum Kim

SEOUL, Jan 31 (Reuters) - SK Holdings Co Ltd's Chairman Chey Tae-won was jailed for four years on embezzlement charges, a Seoul court ruled on Thursday, after South Korea's president-elect vowed tougher action against corrupt business leaders.

Chey, who stepped down in December from his position as chairman of the country's third-largest conglomerate SK Group, was sent straight to prison.

The ruling followed a court decision last August when Hanwha Chairman Kim Seung-youn was sentenced to four years in jail, and taken directly to prison.

Until then, heads of the major family-owned "chaebol" such as Samsung, Hyundai, SK and Hanwha who were convicted of crimes received only suspended sentences, followed by presidential pardons.

The chaebol have been credited with leading the rapid growth of Asia's fourth-largest economy but have come under increasing criticism for lack of transparency and poor corporate governance, as well as their overt influence over politics and society.

"As the head of SK, which has a large influence on the nation's economy, Chey Tae-won should be an example of corporate governance and transparency ... but instead embezzled several tens of billions of won in affiliates' funds and tried to pass on the responsibility to the other defendants," Judge Lee Won-beom told a packed courtroom.

The Seoul Central District Court ruled that the SK Holdings chairman embezzled nearly 50 billion won ($46 million) in corporate funds of SK affiliates for his personal use.

The court cleared his brother, SK Holdings vice chairman Chey Jae-won, of all charges.

The firm is the holding company of SK Group, which includes the country's largest oil refinery SK Innovation, and biggest mobile carrier SK Telecom. It also controls chipmaker SK Hynix through SK Telecom.

Shares in SK Holdings closed down nearly 3 percent before the ruling was announced.

A SK Group spokeswoman said Chey Tae-won would appeal the ruling.

"After a thorough review of the ruling, (SK) plans to take legal steps to prove (Chey's) innocence," the group said in a statement.

In 2003, Chey was found guilty of orchestrating a $1.2 billion accounting fraud at SK Networks Co Ltd, the group's trading arm. He later received a suspended jail term.

STOP SKIRTING THE LAW

Thursday's ruling underlined a shift in treatment for the chaebol, a hot-button issue in last year's presidential and parliamentary elections.

Outgoing President Lee Myung-bak, himself a former chaebol chief executive, was widely criticised during his five-year term for his favourable treatment of the chaebol.

President-elect Park Geun-hye, whose term begins in late February, vowed to level out the playing field between the chaebol and the "economically weak".

She pledged to outlaw suspended sentences for embezzlement and other common chaebol offences, and to restrict presidential pardons for controlling shareholders and executives of conglomerates.

"In the past, there were many cases of skirting the law despite being guilty because they were powerful or rich ... The people's trust in the fairness of the law cannot be let down," Park said on Tuesday.

Chey had stepped down from his position as SK Group chairman in December but remains chairman and CEO of SK Holdings, SK Innovation and SK Hynix.

Chey also controls the telecom-to-oil SK Group through his controlling stake in SK C&C, which is the largest shareholder in SK Holdings. ($1 = 1085.4750 Korean won) (Reporting by Joyce Lee; Editing by Edmund Klamann and Jeremy Laurence)