A court has rejected arrest warrants sought by prosecutors for MBK Partners Chairman Michael Kim and other executives accused of fraud worth about 100 billion won in connection with the "Homeplus case".

The Seoul Central District Court on Tuesday rejected arrest warrants for Kim, Vice Chairman Kim Kwang-il, Vice President Kim Jung-hwan and Managing Director Lee Sung-jin. The decision followed a hearing the previous day to review whether to detain the suspects.

The judge in charge of warrant reviews said the outcome for victims was clearly serious, but the materials submitted so far made it difficult to conclude the allegations were sufficiently substantiated to justify detention. The court added that, considering the progress of the investigation and the level of explanation provided, it was more necessary to guarantee the right to defence while they remain free than to detain them over concerns of destroying evidence or fleeing.

The court also pointed to limits in the warrant review process. It said suspects cannot access prosecutors' evidence during warrant reviews and witness questioning is not conducted. It added that issues requiring assessment, such as subjective elements including intent, should be judged after sufficient analysis and cross-examination.

Earlier, the Seoul Central District Prosecutors Office's Anti-Corruption Investigation Division 3 sought arrest warrants for the four on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and violations of the Capital Markets Act. Prosecutors believe they issued large amounts of asset-backed short-term bonds (ABSTB) despite recognising the possibility of a downgrade in Homeplus' credit rating, then applied for corporate rehabilitation, causing losses to securities firms and others.

Prosecutors said MBK in February last year issued bonds totalling 116.4 billion won, including ABSTB, commercial paper (CP) and short-term bonds (SB). Later that month, Korea Investors Service downgraded Homeplus' credit rating to A3- from A3, and Homeplus applied for corporate rehabilitation four days later.

For the three executives other than Kim, prosecutors also applied allegations of accounting fraud worth about 1 trillion won, manipulation of audit reports and obstruction of a credit rating agency's work. Prosecutors judged that the handling of redeemable convertible preferred shares (RCPS), omission of borrowings and failure to disclose an early redemption clause violated accounting standards.

Immediately after the warrants were rejected, MBK said prosecutors had misunderstood efforts to normalise the company through rehabilitation. It said the decision showed the court recognised MBK and Homeplus' position as valid in terms of legal principles and facts. It added it would continue to do its best to normalise the company.