Prosecutors launched an investigation into whether President Lee Myung-bak’s brother-in-law fabricated a scandal to put one of Lee’s former business partners in trouble and allow Lee to evade stock fraud charges.

The case may deal a blow to the ruling party in the general elections, as it involves a close relative of the president, who is already under fire for other financial scandals.

The Seoul Central District Prosecutors’ Office said Lee’s ex-business partner Kim Kyung-joon had filed a complaint against Shin Myung, 51 and Shin Kyung-hwa for libel and slander. The investigators have questioned Kim and are planning to summon the Shin brothers.

Kim claimed that Shin Myung faked a letter in 2007 under his brother’s name to claim that the then-ruling United New Democratic Party and President Roh Moo-hyun administration tried to bribe him to make false claims against Lee. At the time Lee was presidential candidate for the Grand National Party.

In November 2007, Kim and Lee faced accusations that they had pocketed 30 billion won in 2001 through stock manipulation of Optional Ventures, a company they had bought through BBK, an investment company they had invested in together. Lee claimed that he had ceased his partnership with Kim before the fraud and that he was innocent. A special prosecutor also cleared him of suspicion. Still, some opposition politicians suspect that Lee was one of the main architects of the crime.

Upon his arrival, Kim claimed that Lee was the actual owner of BBK and that he took orders from Lee in the financial scam. The allegation emerged as a critical issue questioning Lee’s suitability as president.

But the atmosphere changed when the Grand National Party revealed a letter sent to Kim by one of his fellow inmates in a U.S. prison, Shin Kyung-hwa. The letter read, “No matter how much the big house promised to you, they are just using us.”

The GNP claimed that the big house refers to Cheong Wa Dae, then of the Roh Moo-hyun administration, and that Kim was deceived by the UNDP, the precedent of the present Democratic United Party, to make false allegations against Lee. Kim was found guilty of stock fraud and is jailed at a foreigners’ prison in Cheonan, South Chungcheong Province.

However, Shin Myung, younger brother of Kyung-hwa, last year revealed that it was him who wrote the letters and that he had no idea what he was writing about.

He said Yang, a close friend of Lee’s brother-in-law, asked him to write the letter so that Kyung-hwa could be taken into consideration for parole.

“Yang kept talking to Lee’s relative via mobile phone and stressed that my brother will be taken good care of,” he said.

Observers said the prosecutors are likely to take the case seriously, since a series of scandals have already surrounded the president.

“The investigation result may have a long-standing influence in the upcoming April 11 general election and the presidential election on Dec. 19,” a prosecutor was quoted as saying by the JoongAng Ilbo daily.

By Bae Ji-sook (baejisook@heraldcorp.com)