Samsung chairman Lee Jae-yong acquitted in controversial merger case

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Samsung chairman Lee Jae-yong acquitted in controversial merger case

Published: 05 Feb. 2024, 15:00 Updated: 05 Feb. 2024, 18:48

MICHAEL LEE
lee.junhyuk@joongang.co.kr

Samsung Electronics Co. Chairman Lee Jae-yong arrives at the Seoul Central District Court in Seocho District, southern Seoul, on Monday afternoon, ahead of the hearing where the court delivered its judgement. [YONHAP]

The Seoul Central District Court on Monday acquitted Lee Jae-yong, chairman of Samsung Electronics Co., on charges of breach of trust and accounting fraud intended to push the merger of two Samsung affiliates.

The court’s judgment comes nine years after the 2015 merger of Cheil Industries Inc. and Samsung C&T Corp. and three years and five months after the Samsung chief was first indicted.

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Prosecutors alleged that Lee committed breach of trust, stock price rigging and accounting fraud ahead of the 2015 merger, when three Samsung C&T shares were offered for one Cheil share.

They argued that Samsung Group engaged in stock market manipulation by inflating Cheil stock prices and also lowering Samsung C&T prices via various illegal means, including spreading false market information and mass purchasing stocks of Samsung affiliates, to help Lee consolidate control over his family’s business empire at a lower cost.

However, the Seoul Central District Court ruled that prosecutors had failed to provide sufficient evidence of the charges against Lee.

The court acquitted 13 other defendants in the case, including Choi Ji-sung, the former head of Samsung Group’s Future Strategy Office, which was disbanded after the merger controversy.

Other former Samsung officials acquitted in the case include Kim Jong-jung and Jang Chung-ki, who previously served as a director and deputy director in the Future Strategy Office.

In its judgment, the court also did not accept prosecutors’ arguments that the merger between Samsung C&T and Cheil was pursued by Lee and members of the Future Strategy Office “with the sole objective of securing [Lee’s] management succession.”

Lee and other Samsung leaders were previously convicted in 2021 on charges of bribing President Park Geun-hye through her friend Choi Soon-sil during her time in office in return for the president putting pressure on the state-run National Pension Service to approve the merger between Samsung C&T and Cheil Industries.

The National Pension Service is a major shareholder in Samsung C&T, the de facto holding company of the Samsung Group.

Prosecutors argued that the alleged illegal activities surrounding the merger were intended to strengthen Lee’s hold over Samsung C&T.

At the time of the merger, Lee already held a 23.2 percent share of Cheil Industries, making him the company’s biggest shareholder.

Cheil’s merger with Samsung C&T was seen as a critical step for Lee to take over the family-controlled Samsung Group after his father, Lee Kun-hee, suffered a heart attack in 2014.

The merger of Cheil Industries and Samsung C&T, approved with the pension service’s support, bolstered Lee’s control over Samsung Group.

Although prosecutors argued that the devaluation of Samsung C&T stocks to facilitate its merger with Cheil resulted in losses for other investors, the court rejected that charge.

The court also dismissed prosecutors’ claims that Lee was involved in accounting fraud at Samsung Biologics, a Cheil subsidiary.

Prosecutors sought a five-year prison sentence and a fine of 500 million won ($374,000) for Lee, arguing that he was the stock manipulation scheme's primary beneficiary and ultimate mastermind.

Lee denied the charges during the trial and claimed that the merger of Cheil Industries and Samsung C&T was not intended to increase his control over the Samsung empire.

He asked the court to acquit him so that he could “concentrate all effort on moving the company forward” from the controversy over the merger.

In an exchange with reporters outside the court after the hearing, Lee’s legal counsel said the judgment “clearly showed that the Samsung C&T merger and accounting practices at Samsung Biologics were conducted in line with the law” and thanked the court “for reaching a wise judgment.”

Prosecutors have said they plan to appeal the court’s decision.

Samsung C&T shares closed 0.47 percent higher on Monday, while Samsung Electronics stocks fell by 1.2 percent.

BY MICHAEL LEE [lee.junhyuk@joongang.co.kr]