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Wealthy Family Entangled in Financial Scandal

March 13, 1985

TAIPEI, Taiwan (AP) _ The saga of the Tsai family in Taiwan is a rags-to-riches legend gone sour.

The family-run Cathay Group, one of Taiwan’s largest industrial conglomerates with combined assets worth more than $2.1 billion, has been linked to what government officials call the worst financial scandal in Taiwan’s history.

The scandal led Taiwan’s economic minister, Hsu Li-teh, to resign March 11 after assuming ″moral responsbility″ for the problems that have beset the Tsais’ banking operations.

Questions are being raised about whether the family can maintain its vast interests in banks, department stores, hotels, plastics, insurance, construction, shipping and advertising.

Tsai Wan-chun, 68, the family’s patriach paralyzed by a stroke six years ago, and his son and business heir, legislator Tsai Chen-chou, 39, have been charged with issuing 2,398 bad checks for $31.75 million.

If convicted, the elder Tsai could be sentenced to 3,214 years in prison, or two years for each of his 1,607 allegedly bad checks and his son to 1,582 years for 791 checks.

In addition, the younger Tsai has been charged with criminal involvement in the illegal diversion of $175 million from the Tenth Credit Cooperative, Taiwan’s largest credit cooperative of which he was chairman, to ailing enterprises in the family’s empire.

These loans, Taipei District Court prosecutors claim, were made despite knowledge that the assets of the troubled companies were insufficient to cover their liabilities.

Finance Ministry investigators say it may take weeks to unravel all the details of the case and tabulate the exact amount of money involved. But they say that even now it is clear the case is unprecedented.

″This is Taiwan’s worst financial crisis in terms of the huge money involved,″ Chen Mu-tsai, deputy director of the ministry’s monetary department, said in an interview.

Exactly how the Tsais landed in such trouble remains unclear. But Taiwanese businessmen speculated in interviews that it resulted from a headlong expansion of the family’s empire, mainly in real estate, without careful planning and also from a breakdown in the nation’s bank auditing system.

The Control Yuan, Taiwan’s chief watchdog assembly, has established a special committee to determine whether there was any official negligence, and it is expected to recommend revisions to a financial system that is regarded as outmoded.

Problems at Tenth Credit surfaced in February when the Finance Ministry abruptly announced a three-day suspension of the cooperative’s loan operations, saying the bank’s loans had exceeded legal limits.

As news spread, there was a stampede by depositors on Tenth Credit’s 18 branches.

The government took over Tenth Credit in an attempt to stem the panic withdrawals, which officials estimated at $250 million in three weeks.

But the damage had been done, and nervous creditors began to besiege other companies in the Tsai’s financial empire, ignoring claims from family members that they all operated independently of each other.

Some people camped out at Tsai-owned hotels, ate hearty meals and told the staff to send their bills to the owners. Others began calling in loans.

As the crisis continued, Tsai Chen-nan, 45, older brother of Tsai Chen- chou, the legislator, called on the government to take over temporary control of Cathay Investment and Trust Co., Taiwan’s largest trust bank, after depositors withdrew $375 million in savings.

Tsai Chen-nan, chairman of Cathay Investment, told reporters that he requested government intervention to restore public confidence and that control would be returned once the panic run ended.

For the ailing Tsai Wan-chuen, who built the empire from scratch, the thought of having it crumble has been heartbreaking and he cried when news of the scandal broke, his friends have said.

Born into a poor farming family, the second of five sons, he received only an elementary school education because his family could not afford further schooling for him. He peddled fruits to augment his family’s income, before working as a cosmetics salesman.

In 1938, he formed a company producing soy sauce and within 10 years he owned a lumber store, toy factory, hotel and cosmetics firm.

As he prospered, so did his empire, but his friends say he never forgot his frugal farming upbringing

When he checked into a family hotel, he always asked for the smallest - and cheapest - room. If he had to entertain visitors, he would use the hotel lobby, explaining, ″money can, and should, be saved whenever possible.″

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