Zalman files for bankruptcy after loan scam by Moneual

News just reached the Western technology press that South Korean cooling firm Zalman filed for bankruptcy on November 3rd.

While we don't know the complete picture yet, it appears Zalman was driven into the ground by Moneual, a robotic vacuum cleaner company that purchased a 60 percent stake in Zalman in 2011. Until recently, Moneual was hailed for being a potential Korean export champion but it turns out the company was built on lies. Moneual was basically a large-scale fraud that took out 3.2 trillion won (US$2.98 billion) in loans using fabricated export data.

While Zalman's role in the story is unclear, it's believed significant amounts of money were pulled out of Zalman over the years to keep Moneual's scam running. We have no information whether there are any parties interested in picking up the Zalman brand. A decade ago Zalman was a well-known brand in the cooling market but in more recent years the company failed to distinguish itself from the massive competition in the aftermarket cooling segment.

The Korea Herald reports about how Moneual's large-scale loan fraud scandal send a shockwave through the South Korean banking system and raised alarm about the commercial banks' ability to pick out qualified loan recipients. Some more details about the scam were published by the Korea Joongang Daily, who received word from a former Moneual employee that the scam was planned by the firm's top executives from day one.

The anonymous employee claims most Moneual workers realized in 2010 that the revenue was fabricated and that employees often joked among themselves that they were actually public servants as their paychecks were coming out of the Industrial Bank of Korea's pockets. Asked why no one reported the fraud to the authorities, the source responded that Moneual bribed employees who asked too many questions and that employees were concerned about making a living. The pay at the company was relatively good and there was no pressure from management for better performance so most employee just remained silent to keep the scheme running as long as possible.

Q. Was the fraud planned from the beginning?

A. Achieving 1 trillion won in revenue in just three to four years is impossible unless it is fabricated. The headquarters in the U.S. [Irvine, California] are the actual headquarters.

The documents were fabricated as if the parts were being exported [to the U.S.] since the finished product is larger and more expensive [than the parts]. That way it was easy to borrow loans by credit through cooked-up revenue. The capital increases created from acquiring Zalman Tech [in 2011] were spent on running Moneual. The management ran the company with recklessness that was already planned.

Every summer, they would make overseas trips, stopping in Hawaii. They drove luxury cars like Mercedes-Benz and BMW. Where do you think all that money came from?