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Hyundai Chairman Is Handed Three-Year Jail Sentence

A South Korean court on Monday sentenced the head of the Hyundai Motor Group to three years in jail, sweeping aside widely-held expectations of a suspended sentence.

The ruling, which should rekindle concerns over a management vacuum at the world's No. 6 auto maker, is another blow for a company contending with a rising won and restive labor unions.

Officials at Hyundai Motor declined to comment, while share market analysts anticipated hefty consequences from the ruling. "This could have a big impact on Hyundai Motor," said Kim Hyun-tae, fund manager at Landmark Investment Management. "The impact on the Korean economy could be huge. There will likely be an appeal, so this process could take longer."

Chung Mong Koo, 68, was arrested last April on allegations that Hyundai and its affiliates set up slush funds to pay for political favors. After the verdict, shares in the South Korea's top automaker were lower.

"The court decided a strict execution of law is necessary to eradicate illegal and anti-market practices in the past and help South Korea build a more advanced economy," Kim Dong Oh, presiding judge at Seoul Central District Court, said.

Prosecutors last month demanded a six-year jail term for Chung, the son of group founder Chung Ju Young, whose post-World War II auto-repair shop burgeoned into a sprawling conglomerate.

Auto analysts had expected the court to hand down a suspended jail term to leave Chung at the helm of Hyundai, given the group's importance to the South Korean economy. Combined exports by Hyundai and its affiliate Kia Motors account for nearly 7% of total exports in Asia's third-largest economy, according to company data.

Chung has been on trial on charges such as breach of trust and embezzling company funds, and incurring losses at group companies by forcing them to support weaker affiliates. The chairman admitted last year to having a role in setting up slush funds through affiliates of Hyundai.

Chung, a micromanager who is heavily involved in most decisions at the group, was released on $1 million bail in June after spending two months in jail.

The case has put the spotlight on management shortcomings at South Korea's powerful "chaebol" -- the family-run conglomerates that helped rebuild the economy after the 1950-53 Korean War but were partly blamed for the financial crisis of the late 1990s.