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Zalman, Moneual, And Surviving A $3 Billion Fraud

I don’t remember which year it was -- 2008, maybe? -- when I was scurrying around the CES show floor in the Las Vegas Convention Center, locating companies I was meaning to talk to. I spotted Moneual’s booth towards the front of a hall, off to the side, in a corner. Moneual--yeah, I’ve heard of them, I should stop by. I wheeled around and made a quick detour to the booth.

No one was there. And there were few products -- two or three HTPC chassis, as I recall, and nothing else. I remember thinking how odd that whole scene looked, how strangely fake, like someone hastily threw the booth together, dropped a couple of products on the counter, and walked off. I left my card and was on my way.

Fast forward several years, and rumors were suddenly circulating that Zalman, a subsidiary of Moneual, was going bankrupt. No, wait, we learned, it’s not Zalman going under, it’s Moneual itself, and it’s due to a major $3 billion (USD) fraud.

Moneual reportedly filed false trade reports, over-reporting sales and profits, to secure loans from a number of banks in its home country of South Korea since 2007. Needless to say, it got caught.

At the time (just over a year ago), we reached out to our Zalman contacts to seek clarity on the issue, and representatives gave us the statement that we posted here. In short, it stated that Zalman was not involved in any way with Moneual’s fraudulent activity; that as a result of the Moneual fallout, Zalman would be undergoing a restructuring, supervised by a South Korean court, but would not go bankrupt; and that it would honor all existing product warranties and post-purchase customer support agreements.

Zalman didn’t have much else to say at that time, but clearly, there was a larger story to tell. Now, more than a year later, we queried Zalman about what happened, what’s gone on since then, and the outlook for the company going forward. Michael Park, Technical Marketing specialist at Zalman, gave us some answers.

A Hard Year

Tom’s Hardware: When all of this first broke, the “story” was that Zalman itself was going bankrupt, which was of course not the case. How did the rumors of bankruptcy affect Zalman’s business?

Michael Park: Partnering manufacturers began to demand advance payment and were hesitant to supply the goods. Buyers throughout the world would delay the payments in fear of the future prospect, and product developments were significantly delayed. Consequently, there were shortages on the inventory, and sales sharply declined accordingly.  

Incidentally, consumers assumed Zalman was going out of business and were worried about their existing warranties. A surge of emails and phone calls regarding the rumor flooded the support lines, as well. Such a chain reaction stemmed all from a malicious rumor with no factual evidence.

TH: Can you walk us through some of the restructuring process? Who was the group that conducted it? What was that like for everyone?

MP: The shock and fear was prevalent once the news about restructuring broke out. Many [employees] did not have any options, and those who had were suggested to seek employment elsewhere. The impact of the downsizing subsided within a few weeks, and the atmosphere quickly changed from chaotic and dismal to bustling and focused.

To many, though the workload increase was manifold, it was a great opportunity to backtrack to our original resolve to become a leader in innovation. Out of all the unfortunate events leading to this point, the most significant blessing in disguise was that we were able to reevaluate ourselves, as a company and as individual employees, and start with a fresh foundation.

TH: It must have been exceptionally difficult to maintain a workforce during the restructuring, both because of potential layoffs and because I imagine some people just didn’t want to risk it and found other work. How did Zalman manage that? Did people leave, and are people coming back?

MP: Shortly after filing for restructuring, immediate action was taken to shut down unprofitable businesses, and we channeled our resources to coolers, chassis, PSUs, and input devices only.

Then, in the absence of a CEO and directors, current CEO Keonwoong In took charge and downsized the employment number from 150 to 50 and formed a new board of directors during the shareholder meeting in November 2014. Production, sales, and marketing departments were minimally affected by the downsizing and continued to survey the market, strengthen the relationship with customers, and develop new products.

Though, currently an average employee is handling the equivalent of a three-person workload.

TH: You previously told me that your hardcore fans supported you through the tough times after the Moneual fraud came to light. What do you mean by that?

MP: Zalman has gained numerous loyal customers over the years, and those who loved our signature “flower” and “omega” heatsinks, cost-effective chassis, reliable PSUs, and innovative accessories continued to support our products despite the seemingly imminent demise of the company.

On forums, emails, and social media, they have openly sympathized with us and gave us tremendous encouragement in moving forward. So, we would like to take this opportunity to apologize for the rather unpleasant surprise and sincerely thank our customers for being awesome. We are working hard to return the favor.

TH: Tell us what’s next for Zalman. What is your core business now? Is the financial mess resolved? What can customers expect?

ZM: Since the downsizing, Zalman reached out to the founding members and veteran engineers who made Zalman the household name for PC components. If you were old enough to build a PC in the early 2000s, we are talking about the very people who made those CPU/VGA coolers.

They are anxious to rekindle the innovation that Zalman is known for, and consumers can expect great products in the upcoming years. Currently, Zalman’s core business is to provide gaming-orientated coolers, chassis, PSUs, and peripherals for mainstream consumers seeking cost-effective solutions, and we are also pursuing industrial thermoelectric cooler modules for enterprise consumers.

As for the financial situation, we are unable to disclose the details due to the ongoing legal case, but it is expected to be normalized in the foreseeable future.

In 2016, we are going back to our roots and launching five AIO CPU coolers, five chassis ranging from low- to high-tier, three PSUs, six gaming keyboards, five gaming mice (and a partridge in a pear tree).

And What Of Moneual?  

Although the above is enlightening, many questions about the whole saga remain. In our conversations with Zalman, we had numerous questions that, because of ongoing legal issues concerning Moneual, the company did not feel comfortable addressing.

In our own digging, we found only traces of Moneual. The U.S. website is offline, and a cached version (beware the chipper YouTube video that autoplays) reveals a whole lotta nothin’, if you’ll pardon the colloquialism. The listed contact number has been disconnected, and the Moneual USA Facebook and Twitter accounts haven’t been updated since mid-October 2014 (shortly before the fraud came to light).

The company is apparently still active with its robot vacuum business in Europe, and you can even find a couple of those products at online retailers such as Target and Home Depot. The Korean website is essentially blank, although Moneual’s Chinese site appears to be up and running.

There has been significant fallout in South Korea’s financial sector over the past year as a result of Moneual’s fraud. According to reports, at least six of the banks that loaned Moneual money have sought to recoup the funds via insurance claims -- and were rebuffed by the Korea Export Insurance Corporation (KEIC, also known as K-sure). South Korea’s financial sector has tightened up its scrutiny of companies, too.

The chief perpetrator of the fraud, CEO Park Hong-seok, was indicted (along with two other executives) on fraud charges, and in October he was sentenced to 23 years in prison for his crime and was ordered to repay some $100 million won (around $84,000 USD).

Moving On

At Tom’s Hardware, we never have a vested interest in the success or failure of any tech company. Our responsibility is to evaluate products based on their merits on behalf of our readers, and the chips can fall where they may. However -- in fact, because of that -- we hate to see any company struggle because of forces beyond its control.

In this case, Zalman’s fortunes were directly and significantly affected by fraud perpetrated by its parent company. One hundred people lost their jobs, and it sounds as though the remaining dozens are working feverishly to keep the company rolling. However, if Michael Park's prediction is true, the company will return to sound financial health soon.

______________________________________________________________________

Seth Colaner is the News Director at Tom's Hardware. He curates and edits the news channel and also writes on a variety of topics. 

Follow him on Twitter @SethColaner. Follow us on Facebook, Google+, RSS, Twitter and YouTube.

  • jimmysmitty
    Hopefully not only health but back into the high end cooling market. I remember when the CNPS 9500 and 9700 came out. They were some of the best you could get. Even the CNPS9900/9900MAX were still good but plenty have passed them.
    Reply
  • d_kuhn
    Glad to read that Zalman survived... I always liked their products, innovative, good pricing, good quality. It would have been regrettable if something totally beyond their control had taken them out too.
    Reply
  • JamesSneed
    "However -- in fact, because of that -- we hate to see any company struggle because of forces beyond its control."
    Interesting statement. Wasn't Moneual owned by Zalman? Of course it was Zalman's fault for not having the right controls in place to catch this type of activity. I bet they pay attention to off shoot companies a tad more going forward. With that said I agree with the sentiment and I too have always liked Zalman products that I have bought over the years.
    Reply
  • hotroderx
    "However -- in fact, because of that -- we hate to see any company struggle because of forces beyond its control."
    Interesting statement. Wasn't Moneual owned by Zalman? Of course it was Zalman's fault for not having the right controls in place to catch this type of activity. I bet they pay attention to off shoot companies a tad more going forward. With that said I agree with the sentiment and I too have always liked Zalman products that I have bought over the years.

    Moneual was there parent company AKA Zalman was owned by Moneual.

    "Fast forward several years, and rumors were suddenly circulating that Zalman, a subsidiary of Moneual, was going bankrupt. No, wait, we learned, it’s not Zalman going under, it’s Moneual itself, and it’s due to a major $3 billion (USD) fraud"

    I am glad that we will see Zalman back in the future I always enjoyed there products a lot! lets be honest there coolers looked amazing! They where not only functional but looked great.
    Reply
  • jasonelmore
    The new Zalman Sounds like a horrible place to work at..

    And the asian work ethic is absurd for those of you who have not experienced it. You are expected to comit 80% of your life to the company, no matter how many hours it takes.. They do not take no for a answer.. and if you dont like it, they tell you to hit the road and hire another guy.. But the turnover rate in this kind of workplace is very high, and for what purpose? to save 1% of money.

    I bet all 50 employee's are on salary instead of hourly wages. This allows them to work them 60-70 hours a week, and not pay a nickle in overtime pay. Additionally, this is a very high stress environment.

    My Dad worked for the Japanese for 15 years, and by the time they were through with him, he almost had a nervous breakdown. He is now in the middle of a lawsuit for overtime wages. They had him doing all of the jobs (including what the hourly guys were doing), and by the salary law, you cannot do that. If they are on a salary, it must be a office type job, or supervisor role where back breaking labor is not used.

    It was so bad at his factory, the Japanese would make the workers sign for toilet paper before they could take some to the bathroom, because they thought the employee's were using to much. He would work 16 hour days, and be told to come in early the next day leaving only 5 hours of possible rest. again, if you didn't like it, you had to find another job. something that's not so easy all of the time.

    Reply
  • prince_of_snuggles
    The new Zalman Sounds like a horrible place to work at..

    And the asian work ethic is absurd for those of you who have not experienced it. You are expected to comit 80% of your life to the company, no matter how many hours it takes.. They do not take no for a answer.. and if you dont like it, they tell you to hit the road and hire another guy.. But the turnover rate in this kind of workplace is very high, and for what purpose? to save 1% of money.

    I bet all 50 employee's are on salary instead of hourly wages. This allows them to work them 60-70 hours a week, and not pay a nickle in overtime pay. Additionally, this is a very high stress environment.

    My Dad worked for the Japanese for 15 years, and by the time they were through with him, he almost had a nervous breakdown. He is now in the middle of a lawsuit for overtime wages. They had him doing all of the jobs (including what the hourly guys were doing), and by the salary law, you cannot do that. If they are on a salary, it must be a office type job, or supervisor role where back breaking labor is not used.

    It was so bad at his factory, the Japanese would make the workers sign for toilet paper before they could take some to the bathroom, because they thought the employee's were using to much. He would work 16 hour days, and be told to come in early the next day leaving only 5 hours of possible rest. again, if you didn't like it, you had to find another job. something that's not so easy all of the time.

    The trend is changing. South Korea was constantly near the last place among OECD countries in work efficiency and work/life balance (with Japan being the worst), and major corporations reacted by showing initiatives to improve the work culture. Even Samsung is restricting work hours to 40 hours a week and offering flexible hours.Though, if today was the late 90's your story would be very relevant.
    Reply
  • firefoxx04
    Seems like people that have been building longer than I have are the ones that like zalmen.

    I can say I have never considered a zalmen product nor have I had one recommended to me.
    Reply
  • Math Geek
    you have to go back about 10 years and before to really remember the zalman coolers. back then they were some of the best and always looked great. i built many systems with them back in the day and still have a couple of them sitting around in a box. sadly they aren't compatible with the new sockets but one day i'll find a way to show them off :)
    Reply
  • blazorthon
    Zalman still has some great coolers that are compatible with current sockets. Besides that, Zalman CPU coolers were very popular even just a couple years ago with several articles on Tom's featuring builds using them (including some builds in SBMs). Most of them should still be compatible even though they aren't listed as such because the mounting holes haven't changed for Intel nor AMD since LGA 1156 and even longer for AMD.
    Reply
  • dstarr3
    Just last month, I picked up a Zalman CNPS9500. It's not the best performing thing on the market anymore, but it still performs very, very well, costs very little, and honestly, is probably the best looking cooler for its size, efficiency, and price.

    I didn't realize the company was going through all this nonsense. Hopefully they come out the other side successfully.
    Reply