[THE INVESTOR] Dong-A Socio Holdings Chairman Kang Jung-seok was arrested on Aug. 8 for allegedly offering kickbacks to local hospitals and evading taxes.

The Busan District Court issued a warrant to detain the 53-year-old chairman who is also the grandson of the founder of Dong-A Pharmaceutical, of which Dong-A Socio is a holding company. 

Prosecutors suspect that Kang has embezzled some 72 billion won (US$63.90 million) from the company between 2007 and 2013. He is accused of spending 5.5 billion won of the funds to offer hospitals kickbacks in return for prescribing its drugs. They also believe he dodged 17 billion won of taxes.

“We will do our best to help resolve the case in a trial,” a Dong-A Socio Holdings official told The Investor, stressing that the arrest warrant doesn’t indicate he is guilty. “We don’t expect a huge leadership vacuum as we have a team of capable professional chief executives.”

Kang reportedly denied the kickback allegations, saying they were due to errors by Dong-A’s salespeople and drug wholesalers. However, the prosecution believes the chairman played a crucial role in providing illegal rebates as he is the top decision maker.

Kang inherited the helm of the pharmaceutical group when he was named chairman in January following the retirement of his father Kang Shin-ho who became honorary chairman of the company he had led for 35 years. The junior Kang joined Dong-A Pharmaceutical in 1989 and held key positions before taking on the role of CEO of Dong-A Socio Holdings in 2013.

In March 2013, Dong-A Pharmaceutical, whose business ranges from ethical drugs and over-the-counter drugs to medical equipment, demerged to form Dong-A ST, Dong-A Pharmaceutical and Dong-A Socio Holdings. At the time, Dong-A Socio Holdings said it would focus on new investments such as biosimilars and other health care business.

By Park Han-na (hnpark@heraldcorp.com)