The indictment of one of South Korea's most respected industrialists brings to a boil tensions that have simmered for years between the country's secretive corporations and regulators seeking to raise standards of corporate governance.

In Seoul yesterday, South Korea's Supreme Prosecutor's Office indicted Hyundai Motor Co. Chairman Chung Mong Koo on charges of embezzlement and misappropriation of corporate funds. Senior Prosecutor Chae Dong Wook said Mr. Chung created a 103.4 billion won ($110 million) "slush fund" that was used to pay for influence among government bureaucrats, financial-industry executives and possibly politicians.

Mr. Chae said some of the money also was diverted for personal use. If he is convicted of the charges brought yesterday, the 68-year-old Mr. Chung, who is detained and awaiting bail proceedings, could be sentenced to life in prison. However, prosecutors say that if he is found guilty, his sentence would more likely be four to five years behind bars.

The indictment reflects just one part of an investigation into allegations of corruption involving a number of senior executives in the group of companies affiliated with Hyundai Motor. During the past two months, prosecutors have conducted raids and arrested executives as they look into who might have received money from Hyundai Motor and its affiliates, or what favors might have been exchanged in return. On Monday, one former bureaucrat summoned for questioning was found dead in a reservoir outside Seoul. The cause of his death remains unclear. Prosecutors said there was no suspicion of homicide.

Hyundai Motor declined to comment on the charges or the investigation.

The turmoil at Hyundai highlights South Korea's painful effort to grow beyond an Asian economic-development model that many see as having outlived its usefulness. For decades, South Korea's generals and other political leaders nurtured the development of a handful of conglomerates such as Hyundai, known as chaebol, that became the country's leading companies.

Like the combines of Japan, which were cultivated by Japan's powerful bureaucracy, the chaebol were protected from competition, assured access to capital and held to low standards of disclosure. The Hyundai chaebol built cars, among other things, while others pursued economic staples from consumer electronics to semiconductors.

Yet many critics are now posing an uncomfortable question: Is the business culture that built postwar South Korea into an industrial powerhouse now holding it back?

Critics have singled out the tight control that founding families maintain over the companies. Mr. Chung, for example, was the son of the group founder, and his son Chung Eui Sun, in turn, became president at Hyundai affiliate Kia Motors Co. The two men own a 60% controlling stake in a group company that has a profitable monopoly on the shipment of Hyundai Automotive group vehicles and parts.

"In some senses, Koreans owe these companies their economic prosperity," says Chae Su Chan, an economist and member of the National Assembly. But, he says, "society on the whole is ambivalent about the family dominance in running the chaebol."

Prosecutors said the indictment of the elder Mr. Chung, the man credited with propelling the Hyundai Motor brand into the ranks of top global auto makers, alleges he used receipts for transactions that never took place to embezzle money from the company. The indictment, which wasn't made public, also accuses Mr. Chung of wrongfully diverting money from financially healthy members of the Hyundai Automotive Group to cover losses at a financially troubled aerospace company, prosecutors said. It names a number of other Hyundai Motor group executives that prosecutors said helped to create the slush funds, including Kim Dong Jin, the vice chairman running Hyundai Motor in Mr. Chung's absence. Hyundai Motor declined to comment.

Amid the probe into Hyundai's affairs, the company has delayed plant openings in Eastern Europe and the U.S. That will slow the momentum that Hyundai has built up during recent years, says Takayuki Shimosaka, an auto-industry analyst with Michigan-based forecasting firm CSM Worldwide. "The brand image has suffered, and there has been a double-digit decline in Hyundai's domestic sales in April," Mr. Shimosaka says. "They need to bring about a quick return to management stability."

The 14% fall in the number of cars sold in April, compared with March, was unusual as auto demand in Korea usually begins to pick up in April. Analysts blamed a shake-up in the company's marketing network and the chairman's arrest.

But Mr. Chung, who has been incarcerated since his April 28 arrest, could return to his post as chairman in a matter of weeks. People familiar with the matter say the chairman will be seeking release on bail, sometime during the next two or three weeks, and under South Korean rules, there are no legal restrictions on Mr. Chung returning to run Hyundai Motor. "We remain hopeful that the chairman will be released on bail soon, and allowed to resume his duties," said Hyundai Motor spokesman Oles Gadacz.

Executives of South Korea's largest companies have been convicted of criminal offenses before, but have often received light sentences and remained at the helms of their companies. The chairman of oil refiner SK Corp. was convicted of breach of fiduciary responsibility in 2003 in connection with an accounting fraud at an affiliated company. He was sentenced to five years' probation. He won a battle with dissident shareholders seeking to unseat him and still heads the company.

That said, prosecutors are seen by analysts as more independent in recent years, with greater latitude to pursue leads and enforce the law. And their interest in the inner workings of the chaebol extends well beyond Hyundai.

The investigations "have taken on a life of their own...beyond the control of any political leader," says Mo Jong Ryn, a political scientist at Yonsei University in Seoul.

Many of the conglomerates formed during the 1950s and 1960s are now facing a generational shift, and they are encountering much greater scrutiny than they did during the 1980s, when their founders passed control to their sons, who are today's leaders. As those men try to hand their groups to a third generation, they are finding that, increasingly, the old rules no longer apply.

In one case, prosecutors say they are examining transactions aimed at transferring control of Samsung Group from its chairman, Lee Kun Hee, to his son. Two Samsung executives were convicted last year of selling corporate bonds to members of the company's founding family at below-market prices in a transaction that helped Mr. Lee's children strengthen their control of the group.

A representative for Samsung Group says it has no comment on the prosecutors' investigation.

Executives of Shinsagae Group, a retailing company, announced last week that the group would adhere to the law and pay applicable taxes, estimated at $1 billion, when control of the company is transferred from the current chairwoman to her son, a process that could start later this year.