A nephew of Sang Jik Lee, the founder of grounded and indebted Eastar Jet (ESR, Seoul Gimpo), has been arrested on charges of embezzlement and breach of trust, district prosecutors in the city of Jeonju, central South Korea, told journalists on January 24.

The prosecutors arrested the man, who has not been named but referred to as Mr A, for allegedly embezzling KRW10 billion won (USD9 million) from company funds to buy stakes in holdco Eastar Holdings and for other business dealings going back to 2017 that allegedly harmed the company’s financial stability.

He had been an executive at Eastar Jet himself. In charge of its financial affairs, he was deeply involved in work related to Jeju Air’s planned acquisition of the troubled carrier until the bigger LCC backed out of the deal in July 2020.

Investigators believe that he may have conspired in the alleged embezzlement with Lee, an independent politician who left the ruling Democratic Party in September 2020 over the scale of the company’s layoffs. An ongoing probe into the activities of the airline’s founder is expected to accelerate with the nephew’s arrest, local media reported.

The investigation into the dealings of Sang Jik Lee and some of his family members was launched last September, driven by a committee of the conservative opposition People Power Party, a move that prompted Lee’s resignation from the ruling party. Lee’s son and daughter are controlling shareholders of Eastar Holdings, the Korea Times reported.

The investigation is also connected to Eastar Jet’s union filing a complaint against Lee last summer alleging tax evasion and the spread of false information. The union claimed at the time that Lee had manipulated funds so that Eastar Holdings could increase its ownership in the budget carrier, speculating that this could have been in violation of South Korea’s Inheritance Tax and Gift Tax Act.