Is Jeffrey Koo Jr's time at Chinatrust over?

Chinatrust Financial Holding Co. Vice Chairman Jeffrey Koo Jr. may be arrested for failing to respond to subpoenas related to alleged misuse of funds in acquiring a stake in Mega Financial Holding Co., a spokesman for Taiwan prosecutors said. Prosecutors issued a second subpoena to question Koo today, Lin Chin-chun, spokesman for the Taipei District Court Prosecutors' Office, said in a phone interview. Koo also didn't show up on Nov. 7 for the first subpoena, Lin said.

"Koo, via his lawyers, said he couldn't come because of family reasons, but prosecutors didn't think the reason is good enough," Lin said. "We now may intend to issue an arrest warrant." He declined to say when prosecutors will decide on the matter.

The issue may lead to Koo's departure from the company. Chinatrust Executive Vice President Jason Wang said if Koo doesn't get in touch with the company, "we'll have to do something to be responsible to our shareholders, including options such as allowing him to resign." Wang, who spoke to Bloomberg in a phone interview, declined to say when the company will decide on the matter and said he didn't know where Koo was. Koo was expected to return to Taiwan on Nov. 18 after finishing a two-month Eisenhower Fellowship study program in the U.S.

Taiwan's fourth-largest financial services company by market value is being investigated for allegedly using funds earmarked for another purpose when it bought a stake in Mega. Acquiring Mega would make Chinatrust the island's second-largest financial group by market value, ahead of Fubon Financial Holding Co.

Prosecutors last month detained Chinatrust's former chief financial officer, Perry Chang, and the company's head of compliance Y.D. Deng, and Senior Vice President Sean Lin. Their detention was part of the investigation, Lin said on Oct. 17. Chinatrust got regulatory approval to buy as much as 10 percent of Mega in February. In June it won four of 15 board seats with control of 15.5 percent of Mega's shares, including those held by affiliated companies.

The stake includes $390 million of notes entitling it to Mega shares bought by Chinatrust's Hong Kong branch last year, the Financial Supervisory Commission said in July. The bank bought the notes using a fund earmarked for customer loans without first consulting the regulator, the commission said.

Koo approved the use of the funds, it said. Prosecutors said Oct. 11 they are investigating Koo, who resigned as Chinatrust Commercial Bank chairman in July. The commission in July ordered Chinatrust Financial to cut its ownership in Mega, the island's second-largest financial group, to 6.1 percent from 9.6 percent, and banned it from raising capital as a penalty.

Chinatrust is already in trouble with bad loans plaguing its balance sheets and the erosion of its assets due to rising provision expenses. Coupled with this possible arrest, is this finally the end of the road for Jeffrey Koo Jr?

What do you think?