Prosecutors Indict Vice Chairman Lee Jae-yong... "Engaged in Unfair Trade Practices"

Involved in Fraudulent Transactions, Price Manipulation, and Breach of Duty... "Meticulous Plan Established"

[Asia Economy Reporter Baek Kyunghwan] Samsung Electronics Vice Chairman Lee Jae-yong has finally been indicted. The prosecution has decided to bring Vice Chairman Lee to trial to have the court rule on allegations of illegal succession of Samsung's management rights. The prosecution stated that it confirmed various illegal acts such as organized fraudulent transactions, market manipulation, and breach of duty during the merger of Cheil Industries into Samsung C&T, which was executed as part of the succession process.

On the 1st, the Economic Crime Criminal Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Lee Bok-hyun) announced that it had completed the investigation into the "Samsung Group illegal merger and accounting fraud case" and indicted a total of 11 key Samsung Group figures, including Vice Chairman Lee, without detention.

The investigation team mentioned that after the prosecution's investigation review committee recommended non-prosecution, they listened to various opinions including critical views from external experts in law, finance, economics, and accounting. In particular, they fully reexamined the investigation details, legal principles, case handling directions, multiple academic and precedent opinions, the clarity of the facts proven by evidence, and the review results of a chief prosecutor meeting composed of investigation experts, explaining the background of the indictment in detail.

First, regarding various illegal acts during the merger of Cheil Industries into Samsung C&T, the investigation team indicted Vice Chairman Lee, former Future Strategy Office Chief Choi Ji-sung, former Strategy Team Leader Kim Jong-jung, former Samsung C&T CEOs Choi Chi-hoon and Kim Shin, and CFO Lee Young-ho on charges of fraudulent transactions and market manipulation under the Capital Markets Act, as well as breach of duty. Former Future Strategy Office Deputy Director Jang Choong-ki was indicted on charges of fraudulent transactions under the Capital Markets Act.

In particular, Vice Chairman Lee was also charged with violating the External Audit Act. The investigation team confirmed accounting fraud by Logics to conceal the illegal merger and perjury by the group’s top executives, applying the same charges to former Future Strategy Office Chief Choi Ji-sung, former Strategy Team Leader Kim Jong-jung, and Logics CEO Kim Tae-han.

Looking in detail, the investigation team viewed that between May and September 2015, under the succession plan (Project-G4) meticulously prepared over several years to strengthen Lee’s succession and control over Samsung Group, the Future Strategy Office led the merger of Cheil Industries (formerly Everland), where Lee was the largest shareholder, into Samsung C&T.

At each stage of the merger transaction, the investigation team judged that various unfair trading acts and market manipulation under the Capital Markets Act were committed, including ▲spreading false information ▲concealing important information ▲announcing false favorable news ▲purchasing major shareholders ▲illegal lobbying to secure the National Pension Service’s voting rights ▲mobilizing Samsung Securities PB organization ▲market manipulation through concentrated repurchase of treasury stocks targeting Samsung C&T investors.

Vice Chairman Lee was also charged with false disclosure and accounting fraud under the External Audit Act. Another issue involves allegations that Lee was involved in the 4.5 trillion won accounting fraud at Samsung Biologics. Samsung Biologics is a key subsidiary of Cheil Industries, and the higher its value, the more justified the '1 to 0.35' merger ratio between Samsung C&T and Cheil Industries becomes. However, the prosecution believes that Samsung Biologics inflated its value by hiding liabilities of its subsidiary Samsung Bioepis.

In 2012, Samsung Biologics jointly established Samsung Bioepis with the U.S. pharmaceutical company Biogen. Biogen was granted a call option to purchase half of Samsung Bioepis shares at a predetermined price. However, the fact that Biogen held the call option was omitted from the accounting books. Call options are treated as liabilities. The prosecution judged that Samsung Biologics intentionally committed accounting fraud to inflate its value.

The investigation team stated, "Vice Chairman Lee and the Future Strategy Office meticulously planned to succeed Samsung Group and strengthen control at minimal cost," adding, "To this end, they are judged to have systematically committed various unfair trading acts such as spreading false information, concealing unfavorable important information, purchasing shareholders, illegal lobbying, and market manipulation."

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