Shin Kyuk-Ho, 95, founded the group in Tokyo in 1948 and built into a sprawling giant that today has dozens of units focused on food, retail and hotels in South Korea and Japan.
It is the fifth biggest of the chaebol, the family-run conglomerates that have powered South Korea's growth into the world's 11th-largest economy, but are sometimes accused of murky business practices and overly-close ties with politicians.
Lotte has been a target of investigations since Shin's two sons made headlines with a bitter public fight for control of the group, featuring personal attacks in which they accused each other of mismanagement, personality flaws, and of manipulating their frail, aged father.
The founder, both his sons, his elder daughter and his mistress were all in the dock on multiple charges at the Seoul Central District Court.
Shin was accused of embezzling at least 128.6 billion won ($119 million) from the firm to benefit his relatives.
He was found guilty and sentenced to four years in prison, although the court said it could not specify the amount embezzled and allowed him to remain free on health grounds pending an appeal -- he has diseases of old age, including dementia.
"The accused Shin disposed of company assets as if they were his own in betrayal of his responsibility," said presiding judge Kim Sang-Dong.
"This case reveals how the founding families of chaebol attempt to obtain private gains from companies."
Shin shouted incoherently in court when the sentence was read out.
Beauty contest
Prosecutors accused Shin and his son and successor as chairman Shin Dong-Bin of causing 77.8 billion won ($72 million) in damages to the group by renting out Lotte Cinema concessions at discounted rates to the founder's eldest daughter and mistress.
The daughter was jailed for two years, while the mistress -- a former model and actress 39 years Shin's junior, who came to his attention after winning a beauty pageant -- was given a suspended sentence.
The court also found Shin and Dong-Bin guilty of enabling the mistress' daughter to receive 10 billion won ($9.3 million) in salary from Lotte without doing any work.
But Dong-Bin was given a suspended sentence on the grounds he was not in a position to refuse his father's orders.
Another son, Dong-Joo -- who lost the bitter succession battle when board members sided with his younger brother -- was cleared of all offences.
Social responsibility
The case is only one of several issues assailing the Seoul-based Lotte group which has combined assets valued at more than $90 billion.
Dong-Bin is on trial separately in connection with the corruption scandal that brought down President Park Geun-Hye, with prosecutors seeking a four-year sentence in that case.
The company has also been targeted by Chinese authorities after it provided land to the South Korean government to host a US missile defence system, whose deployment has infuriated Beijing.
It has seen scores of its 120-plus outlets in China shut down, ostensibly over "safety issues", with angry protestors holding demonstrations against it.
The measures have cost Lotte an estimated 2 trillion won ($1.85 billion), according to South Korea's Yonhap news agency, and in September the group said it would put its Chinese retail unit up for sale.
The company said in a statement that it respects Friday's court decision.
"We will strive to contribute to the growth of this country and fulfil our social responsibility," it said.
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