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Lotte’s latest crisis is its biggest

SEOUL, SOUTH KOREA - AUGUST 03: Shin Dong-Bin, the younger son of Lotte Group founder Shin Kyuk-Ho speaks with the media as he arrives from Japan at Gimpo airport on August 3, 2015 in Seoul, South Korea. Shin Dong-joo, the eldest son of Lotte Group founder was fired from Lotte Holdings in Japan in January, and the second son, Shin Dong-bin was appointed chairman of the holding firm early July 2015. Then, Dong-bin has fired his father as general chairman of the Japanese holding comp. (Photo by Chung Sung-Jun/Getty Images)

Lotte Group faced the biggest crisis in its history as prosecutors investigate it for shady practices, and a number of impending projects – including a corporate governance restructuring – may be at risk.

Major projects by the group, including an initial public offering (IPO) of its hotel unit, the acquisition of an American chemical firm and the regaining of a license to operated a duty free mall at Lotte World Tower in Jamsil, southern Seoul, are on the brink of falling apart as the retail and confectionery giant is investigated in a kind of probe it has never faced since its start in 1967.

Prosecutors raided the headquarters and 17 major offices of Korea’s fifth largest conglomerate in Seoul Friday to seize proof of the group’s maintaining of illegal slush funds and possible embezzlement.

The investigation comes 11 months after two sons of 93-year-old Lotte Founder and current general chairman Shin Kyuk-ho began a high-profile war over control of the group.

Lotte Group Chairman Shin Dong-bin, the second son of the founder, is currently on a business trip to Mexico and the United States. He is “feeling grave responsibilities and will clarify any suspicions,” a key aide told the JoongAng Ilbo on Sunday.

The chairman is considering appearing at the prosecutors’ office to offer explanations. He was scheduled to come back to Seoul Thursday.

Dong-joo, the founder’s eldest son and ousted vice chairman of Lotte Holdings in Japan, is expected to propose dismissal of his brother Dong-bin at a shareholders meeting in Tokyo at the end of this month. Dong-joo has incessantly been looking for a way to take back control of the chaebol, publicly criticizing his younger brother and using verbal testamonials from his father, who is suspected to be suffering from Alzheimer’s disease.

“I heard from the Korean press that Lotte Group is under prosecutors’ investigation on accusations of creating slush funds,” said Shin Dong-joo on Friday in a statement posted on a homepage (http://www.l-seijouka.com) of a group of his supporters. “Problems of the current management system centering on Shin Dong-bin, who ousted me, are being newly exposed.”

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