The Korea Herald


Legal risks mount for Samsung’s jailed chief

Lee Jae-yong’s trial on leadership succession resumes amid suspicions of illegal drug use

By Song Su-hyun

Published : March 11, 2021 - 19:14

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(Yonhap) (Yonhap)

The trial of Samsung Group’s de facto chief, Lee Jae-yong, resumed Thursday, increasing legal risks for the country’s biggest conglomerate as the court examines his role in the 2015 merger of two business units within the group.

The Seoul Central Court held a second session to set a preliminary date for the trial of 12 Samsung executives, including the imprisoned Samsung Electronics vice chairman, who is the only son of the late Samsung Group Chairman Lee Kun-hee. The session was suspended due to COVID-19 in January.

The junior Lee, currently in jail for separate offenses, did not attend Thursday’s session. He was convicted of bribing former President Park Geun-hye and her confidante Choi Soon-sil in 2017, and his conviction was upheld at a final trial in January this year.

The current trial is about the process by which he inherited managerial control over the conglomerate from his father.

During the session, which lasted more than four hours, prosecutors and Lee’s lawyers had a fierce war of words. Samsung’s lawyers flatly denied all the charges against Lee.

In September prosecutors indicted Lee and the other Samsung officials on charges of violating the capital market laws, accusing them of planning the merger of Samsung C&T and Cheil Industries in a way that would have made it easier for Lee to gain control of the company.

Samsung denied all details of the indictment at the first session in October, arguing that the merger was part of ordinary business activities that were conducted legally.

In 2015, Samsung Group merged Samsung C&T, the de facto holding firm of the group, and Cheil Industries, a textile and electronic chemical materials producing affiliate of Samsung. But the merger was embroiled in controversy because some C&T shareholders, such as US hedge fund Elliott, argued the merger ratio was set in favor of Lee.

Lee was the largest shareholder in Cheil Industries with a stake of 23.2 percent, which means a fall in the valuation of Samsung C&T would make for a merger ratio more advantageous to the Samsung heir.

At that time, Samsung C&T was suspected of deflating the volume of its overseas construction orders and domestic housing construction contracts. Samsung C&T also reported an 11 percent decrease in its sales in the first half of 2015, having suffered steady falls in its stock prices, leading to a merger ratio of 1-0.35 that was favorable to Cheil Industries.

As a result of the merger, Lee became the largest shareholder of Samsung C&T.

Prosecutors also accuse Lee and the indicted officials of window dressing Samsung Biologics’ financial statements to inflate Cheil’s stake in the bio business. Whether Lee ordered any accounting fraud or not was one of the key points of the prosecutors’ probe.

The imprisoned Samsung heir also faces other legal challenges. Another probe, requested by the Anti-Corruption and Civil Rights Commission last year, is looking into allegations that Lee illegally used the drug propofol on a regular basis at a plastic surgery hospital.

Samsung has applied for a civil panel discussion on the legitimacy of the probe. On Thursday, a panel of 15 citizens randomly picked by the prosecutors discussed the issue.

Samsung issued a statement indicating that Lee had used propofol legally for medical purposes.

“Even the police investigation so far has found no illegal use of the drug yet,” the statement said.

By Song Su-hyun (