South Korean supermarket giant Homeplus has been hit with a 500 million won (US$450,000) fine after providing exaggerated profit forecasts to its convenience store franchisees.

The Homeplus fine is one of the largest corporate fines in the South Korean history and follows the discovery that the company had given 206 prospective franchisees financial projections based on standards the company had modified, the Korea Fair Trade Commission (KFTC) said.

According to the Franchise Business Act, profit forecasts for franchise businesses are meant to be crafted by choosing five of the nearest stores from the newly proposed location and factoring in the three in the middle, dropping the two locations with the highest and the lowest profits.

The law was put in place in 2014 as part of efforts to bring transparency and stability to the franchise agreement process.

However, Homeplus was accused of giving rosy predictions based on misleadingly chosen information, which was then distributed between March 2014 and April of this year in order to entice potential franchisees to sign contracts with them.

Records also show despite current laws requiring franchises to base their profit predictions on shops that are as little as six months old, the retail giant used stores that had been open for more than a year.

As a result, the supermarket giant was able to create misleading profit predictions based on data from well-established and stable locations.

In addition, Homeplus has also been accused of changing dates during which profits were recorded, selecting locations with better sales, and changing the size of stores for better sales per square foot reports.

Despite resorting to manipulative tactics, the agreement contracts stated nonetheless that the terms and conditions were in line with the standards of the KFTC.

Following the revelation, the KFTC fined Homeplus 500 million won, the biggest corporate fine permitted within the South Korean legal system, while informing all franchisees of the corrective order imposed on the franchise.

Homeplus, the parent company of the ‘365 Plus Convenience Store’ chain, had over 377 locations around the country as of February this year, with annual sales estimated at 117.1 billion won.

• Original reporting by Ashley Song of Korea Bizwire.