Another Perspective on Lee Jae-yong's Trial: 'Elliott'... Within the Influence of 900 Billion Won ISD

Elliott-Korean Government ISD Arbitration Case
JY Trial Results Have Direct and Indirect Impact
Claimed Amount Exceeds 920 Billion Won
Elliott Launches Offensive with Active Cooperation from US Government

Lee Jae-yong, Vice Chairman of Samsung Electronics, who is under prosecution investigation for allegations of unfair succession of management rights related to the merger of the former Samsung C&T and Cheil Industries, as well as allegations of accounting fraud at Samsung Biologics, is entering the courtroom to attend the warrant hearing held on the 8th at the Seoul Central District Court in Seocho-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporters Hyewon Kim and Gimin Lee] Elliott Management, a US-based hedge fund, is paying close attention to the judicial proceedings involving Samsung Electronics Vice Chairman Lee Jae-yong, who is under prosecution over allegations related to the merger of Samsung C&T and Cheil Industries and the succession of management rights. The outcome of Lee’s trial could have a direct or indirect impact on the investor-state dispute (ISD) arbitration lawsuit Elliott filed against the South Korean government two years ago.

An international arbitration expert who wished to remain anonymous pointed out on the 10th, "If Vice Chairman Lee is detained or prosecuted in connection with the investigation into the Samsung C&T-Cheil Industries merger, he will inevitably be placed at a disadvantage in the ongoing ISD arbitration between Elliott and our government." The expert suggested that the severity of Lee’s judicial treatment and future court rulings could serve as grounds favorable to Elliott. Citing last year’s Supreme Court ruling on Lee’s state corruption case appeal, which stated that "an illicit request need not be explicit but can be implicit, and it is sufficient if a quid pro quo relationship can be recognized," the expert noted that Elliott is closely monitoring lawsuits related to Lee.

ISD is a system through which foreign investors can seek compensation via international litigation if they suffer damages due to the host country’s policies or regulations. Elliott submitted an ISD arbitration request to the government in July 2018, claiming that the government unfairly intervened and exerted influence during the Samsung C&T-Cheil Industries merger process, causing damages amounting to $770 million. Converted at the current exchange rate, the claim exceeds 920 billion KRW, and if the government loses, a massive loss to the national treasury is inevitable. In December last year, the government was also forced to return 73 billion KRW after losing an ISD lawsuit with the Iranian Dayani family related to the sale of Daewoo Electronics.

Elliott is aggressively pursuing its case with active cooperation from the US government. The US State Department reportedly submitted a statement to the ISD arbitration tribunal in February asserting that "the actions of the National Pension Service are attributable to the Republic of Korea." The 11-page statement noted that "non-governmental organizations such as state-owned enterprises essentially exercise authority delegated by the state," lending support to Elliott’s claim that the government is responsible for the actions of the National Pension Service.

Meanwhile, the South Korean government finds itself on the defensive as the ISD case becomes intricately entangled with Vice Chairman Lee’s state corruption trial. Recently, following an ISD arbitration tribunal procedural order favoring Elliott, the government handed over minutes from National Pension Service meetings concerning the Samsung C&T-Cheil Industries merger, as well as investigation and trial records related to the state corruption case, to Elliott.

An international litigation lawyer from a major domestic law firm explained, "The ISD between Elliott and the government is being conducted strictly confidentially, making it difficult to grasp the details," but added, "Typically, ISD cases involving criminal matters see both sides fiercely opposing each other, with the opposing party (Elliott) obtaining indictments or closely monitoring trials to find weaknesses."

This content was produced with the assistance of AI translation services.