The Prosecutors' Final Decision... Investigation Deliberation Committee 'Passing'

Despite the Investigation Review Committee's Recommendation for Non-Prosecution... "We Believe Judicial Judgment Is Necessary"

[Asia Economy Reporter Baek Kyunghwan] The prosecution's decision to indict Samsung Electronics Vice Chairman Lee Jae-yong without detention marks a case where the prosecution itself broke the precedent of accepting the recommendations of the Prosecution Investigation Deliberation Committee, which had been repeated eight times. In particular, the committee overwhelmingly voted 10 to 3 in June to recommend suspension of investigation and non-prosecution of Vice Chairman Lee, as well as non-prosecution of current and former executives, and by ignoring this, it is expected that criticism from both inside and outside the prosecution will be unavoidable.

On the 1st, the Economic Crime Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Lee Bok-hyun) indicted Vice Chairman Lee without detention on charges of unfair trading and market manipulation under the Capital Markets Act, and breach of duty. Ten Samsung affiliates, including former Samsung Future Strategy Office Chief Choi Ji-sung and former Future Strategy Office Strategy Team Leader Kim Jong-jung, were also sent to trial. This comes one year and nine months after the Securities and Futures Commission reported Samsung Biologics for accounting fraud to the prosecution on November 20, 2018.

On that day, the investigation team judged that the 2015 merger between Samsung C&T and Cheil Industries was meticulously planned under the leadership of Samsung Group's Future Strategy Office to ensure a stable succession of management rights for Vice Chairman Lee. They also believe that Lee received important reports and gave approval at each stage.

Samsung C&T and Cheil Industries resolved the merger in May 2015 through their boards of directors, exchanging one share of Cheil Industries for about three shares of Samsung C&T. Vice Chairman Lee, who held 23.2% of Cheil Industries shares, secured stable shares in the integrated Samsung C&T, which functions as a holding company after the merger, thereby strengthening his control over the group.

The investigation team judged that during this process, various unfair trading practices were committed to inflate Cheil Industries' stock price and lower Samsung C&T's stock price, including ▲ spreading false information ▲ concealing important information ▲ announcing false favorable news ▲ major shareholder purchases ▲ illegal lobbying to secure National Pension Service voting rights ▲ market manipulation through concentrated repurchase of treasury stocks.

As a result, Samsung C&T did not receive a proper valuation of its corporate value, and investors in Samsung C&T suffered losses by missing opportunities to increase shareholder value, according to the prosecution's judgment. The charge of breach of duty was applied to this part.

The investigation team also judged the accounting fraud allegations against Samsung Biologics, a subsidiary of Cheil Industries and the starting point of the investigation, as intentional 'window dressing' and applied charges of violating the Act on External Audit of Stock Companies against Vice Chairman Lee and others. The investigation team criticized, "Samsung executed the merger under the Future Strategy Office's instructions for the owner's private interests of 'succession and strengthening control at minimal cost,' ignoring and deceiving investors' interests. This is a clear act of breach of duty and a serious crime of organized disruption of capital market order that disregards the legislative intent of the Capital Markets Act."

Regarding the decision not to follow the non-prosecution recommendation of the Investigation Deliberation Committee, it was explained, "The case is serious, with clear objective evidence, and has raised public suspicion, so it was judged necessary to undergo judicial judgment."

However, the Investigation Deliberation Committee was a system voluntarily introduced by the prosecution in 2018 to ensure transparency and fairness of investigations. The prosecution even filed a detention warrant for Vice Chairman Lee immediately after applying for the committee's convening, but the warrant was dismissed by the court, leading to criticism of 'poor and biased investigation.'

Calling professors and experts in business administration and accounting over the past two months to gather opinions on the investigation also sparked controversy. Although the intention was to hear external opinions after consecutive setbacks from the warrant dismissal and the committee's recommendation, it was immediately analyzed as a procedure to build justification for the disposition.

Meanwhile, if Vice Chairman Lee's indictment is finalized and classified as an economic case, it is expected to be assigned to one of the Seoul Central District Court's Criminal Divisions 24, 25, 34, or 35. All are specialized economic crime trial divisions, handling cases such as the Invossa K injection component manipulation suspicion (Division 24), Professor Jeong Gyeong-shim's Dongyang University children's admission corruption and private equity fund suspicions (Division 25), the large-scale redemption suspension incident of Optimus Asset Management (Division 34), and former Chief Justice Yang Seung-tae's abuse of judicial administrative power (Division 35).

Chief Prosecutor Lee Bok-hyun of the Economic Crime Division, who was in charge of this investigation, will transfer to the Daejeon District Prosecutors' Office as of the 3rd. On the 27th of last month, the Ministry of Justice announced a prosecution reorganization plan establishing the Seoul Central District Prosecutors' Office Special Trial Team 2 (led by Chief Prosecutor Kim Young-cheol). Chief Prosecutor Kim, who has participated in the Samsung Biologics investigation, will lead the prosecution of Vice Chairman Lee and others.

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