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.

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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. 

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