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Samsung back in gridlock upon indictment

Sept. 1, 2020 - 18:08 By Song Su-hyun

Samsung Electronics is facing a harder time than ever before, finding itself at the center of another legal battle against prosecutors as its heir apparent Lee Jae-yong on Tuesday was indicted for his alleged role in a 2015 merger and fraudulent accounting.

Legal representatives for Samsung released a lengthy statement upon the indictment questioning the legitimacy of the prosecutors’ decision that apparently ignored an independent panel’s opinion in June that they should not file such charges against Lee.

“The prosecutors’ investigation was navigated to indict Lee and Samsung Group from the beginning, which is not only unacceptable but also beyond unfortunate,” statement said. “The charge of occupational breach of trust was newly added to the latest indictment, which was never discussed before, while failing to provide sufficient proof of the alleged acts of lowering the merger ratio in favor of the indicted.”

Industry officials and scholars say the latest indictment would put Samsung heir Lee in a difficult position, as the de facto leader of the country’s biggest conglomerate should spearhead its businesses amid continuing uncertainties stemming from the COVID-19 pandemic while pushing for his own acquittal.

“Given that the economic situation would aggravate further after the COVID-19 pandemic, the latest indictment on Lee would deal a harder blow to Samsung in terms of current businesses as well as investments for future businesses that require important decisions,” said Rhee Dong-kee, professor at Seoul National University.

“The prosecutors’ latest decision lacks consideration of the reality of business affairs,” Rhee added. “What Samsung had done for the merger and Biologics’ accounting case could be seen as legitimate from the perspectives of business.”

Over the last two years since he was released from prison in February 2018 after being imprisoned for about a year for bribing former President Park Geun-hye, Lee has been making public displays of his on-site management moves and announcing massive investment plans.

However, due to the continued prosecution’s investigation into the 2015 merger between Cheil Industries and Samsung C&T and the accounting fraud at Samsung Biologics, Lee wasn’t completely free from legal risk.

“Considering that the indictment without detention takes a comparatively longer time for trials, the latest indictment decision would limit Lee’s business activities and Samsung’s schedule for making major investments in the semiconductor and biomedicine businesses,” a Samsung official said.

With Samsung already involved in multiple legal battles, including the disruption of labor unions at affiliates and the presidential bribery case, the latest indictment would add another burden to Samsung, industry watchers say.

“Other trials are pending, and it is matter of trust for Samsung,” Rhee said. “It would take an immense amount of time and money for Samsung.”

Some raise concerns that the prosecution’s decision might lend an upper hand to US-based hedge fund Elliot, which is preparing its case against the Korean government for approving the Cheil Industries-Samsung C&T merger.

Elliot recently requested that Korean prosecutors provide documents related to the merger, which was rejected by prosecutors as the investigation was still proceeding.

“Elliot may take advantage of the latest decision, which could demand the government to pay up to $770 million in damages,” an industry official said. 

By Song Su-hyun (