South Korean banks accuse Newegg of involvement in Ponzi scheme

Tech retailer Newegg Inc. is facing legal action from four South Korean banks alleging that hardware manufacturer Moneual Inc. (parent company of Zalman) helped Newegg to defraud banks of their money.

The suit accuses Newegg and ASI Corporation, an electronics wholesaler, of creating non-existent and exaggerated orders for Moneual to gain a higher valuation from investors. By inflating sales figures, the suit alleges that Moneual was able to receive hundreds of millions of dollars from South Korean banks that was not backed by any collateral, placing investors at great risk.

In the complaint, Newegg and ASI allegedly received payments for participating in the scheme. Gibson Dunn law firm, representing Kookmin Bank, Keb Hana Bank, Nonghyup Bank and Industrial Bank of Korea, believes Moneual was able to obtain more than $3 billion in loans from 10 different Korean banks by falsifying purchase orders.

Moneual has been under investigation for financial fraud for several years now. In 2015, former CEO Hong-seok Park was sentenced to 15 years in prison and hit with hefty fines. Now that Moneual has had difficulty repaying debts to banks, Newegg and ASI have come under fire for having close ties to the alleged fraud.

Newegg and ASI both frequently placed orders with Moneual but the key fact that indicates their knowledge of the scheme is that certain products were allegedly bought for over 300 times their retail values. "No such business would have bought the products at such an inflated price, unless it intended to create the illusion of extensive, profitable, high-value commerce between it and its supplier for the purpose of defrauding lenders into supporting the transactions," states the legal filing.

The plaintiffs are seeking monetary damages through a jury trial. Up to $230 million is still owed according to the South Korean banks.