Prosecution Ultimately Indicts Vice Chairman Lee Jae-yong... Defense Team Calls Investigation Team's Claims One-Sided (Comprehensive)

On the 1st, at the Seoul High Prosecutors' Office press room, Lee Bok-hyun, head prosecutor of the Economic Crime Division at the Seoul Central District Prosecutors' Office, announced the investigation results of the 'Samsung Group Illegal Merger and Accounting Fraud Case.' / Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Choi Seok-jin] The prosecution, which has been investigating allegations surrounding the merger between Samsung C&T and Cheil Industries, collectively indicted Vice Chairman Lee Jae-yong of Samsung Electronics and other related parties on the 1st, concluding a 1 year and 9 months investigation.

Despite receiving a recommendation from the Prosecution Investigation Deliberation Committee, composed of external experts, to ‘halt the investigation and not prosecute’ Vice Chairman Lee, the prosecution conducted additional investigations for over two months and ultimately indicted Lee and others, marking the first case of disregarding the committee’s recommendation.

However, since opinions among accounting experts remain divided regarding the legality of Samsung Biologics’ accounting treatment, a fierce legal battle between the prosecution and Samsung is expected during the trial process.

In a statement issued immediately after the prosecution’s announcement of the investigation results, Samsung’s legal team expressed strong dissatisfaction, stating, “The charges in this case?violation of the Capital Markets Act, accounting fraud, and breach of fiduciary duty?are unilateral claims by the investigation team not based on evidence or legal principles and are absolutely untrue,” adding, “The prosecution, which goes against the will of the people and even ignores the judiciary’s rational judgment, not only violates legal fairness but also damages public trust in the prosecution itself.”

Lee Jae-yong, Choi Ji-sung, Jang Chung-gi, Lee Young-ho, and 11 Others Indicted Together

The Economic Crime Division of the Seoul Central District Prosecutors’ Office (Chief Prosecutor Lee Bok-hyun) indicted Vice Chairman Lee, former Samsung Future Strategy Office Chief Choi Ji-sung (Vice Chairman), former Strategy Team Leader Kim Jong-joong (President), former Samsung C&T CEOs Choi Chi-hoon and Kim Shin, former Samsung C&T CFO Lee Young-ho (current CEO of Samsung C&T), and former executive Lee Mo on charges including unfair trading and market manipulation under the Capital Markets Act, and breach of fiduciary duty during the merger process between Cheil Industries and Samsung C&T, without detention.

Former Deputy Head of the Future Strategy Office Jang Chung-gi (President) was sent to trial on charges of unfair trading under the Capital Markets Act.

The prosecution also indicted Vice Chairman Lee, former Chief Choi, former Team Leader Kim, Samsung Biologics CEO Kim Tae-han, former Vice President Kim Mo, and executive Kim Mo without detention on charges of violating the External Audit Act (preparing and disclosing false financial statements by violating accounting standards) related to accounting fraud to conceal the illegal merger at Samsung Biologics.

Additional perjury charges in the National Pension Scandal trial were added against former Team Leader Kim Jong-joong and former CEO Kim Shin.

The prosecution stated that all 11 individuals, including Vice Chairman Lee, were indicted without detention on the same day, with all charges detailed in a single 133-page indictment.

Chief Prosecutor Lee Bok-hyun, who led this investigation, said, “The Investigation Deliberation Committee considered legal aspects but also took into account the national crisis situation,” adding, “In an effort to respect the committee’s opinion, we also considered that a too broad indictment might appear imprudent when deciding the scope of prosecution.”

However, he noted that there remains room for further investigation into lower-ranking officials related to the high-ranking individuals indicted today, such as those reported by the Financial Services Commission, and that decisions on judicial processing for them will be made later.

Prosecution “Seriously Considered the Investigation Deliberation Committee’s Recommendation”

At a briefing on the investigation results held at 2 p.m. at the Seoul High Prosecutors’ Office press room in Seocho-dong, Seoul, the prosecution devoted considerable time explaining the reasons for not following the committee’s recommendation, seemingly aware of criticism both inside and outside the prosecution that it ignored the committee’s recommendation because it was inconvenient.

Chief Prosecutor Lee said, “Not only the investigation team but everyone involved took the committee’s recommendation very seriously,” adding, “We earnestly considered and reviewed what the prosecution should do to gain trust in the future.”

He continued, “However, only the conclusion from the committee was communicated, and the detailed content and discussions were not provided. We even unofficially requested to receive them but it was difficult to confirm,” adding, “Since there are various perspectives, we tried to indirectly review the plus and minus factors of the discussions by inviting those who expressed opinions or were involved.”

The prosecution also stated that after the committee’s ‘non-prosecution’ recommendation, they consulted experts in law, economics, finance, and accounting, and recorded their opinions with the consent of the parties involved.

Newly Established Seoul Central District Prosecutors’ Office Special Trial Team 2 Likely to Maintain Prosecution... Chief Prosecutor Lee Bok-hyun Also Expected to Participate

The maintenance of prosecution for Vice Chairman Lee and others is expected to be led by Deputy Chief Prosecutor Kim Young-chul, who participated in previous Samsung investigations, at the newly established Special Trial Team 2 of the Seoul Central District Prosecutors’ Office, formed in the Ministry of Justice’s personnel reshuffle on the 27th of last month.

Chief Prosecutor Lee said, “Large-scale cases are handled by teams, and when cases go to court, team leaders naturally become part of the trial team to maintain prosecution, so I also plan to be involved.”

In 2018, when the People’s Solidarity for Participatory Democracy and the Securities and Futures Commission accused Samsung Biologics of accounting fraud, the prosecution began investigations in December of the same year by conducting searches and seizures at Samsung C&T and others.

During the investigation, the prosecution requested arrest warrants twice for Samsung Biologics CEO Kim and once for Vice Chairman Lee, but all were dismissed.

In particular, the reasons for dismissing the arrest warrant for Vice Chairman Lee, as explained by the judge in charge of warrants, led to completely opposing interpretations by the prosecution and Samsung.

At that time, Samsung interpreted the judge’s dismissal of the prosecution’s arrest warrant request?who used the phrase “basic facts have been established” instead of the usual “criminal suspicion has been established,” and stated that “it is appropriate to determine the responsibility and degree of the suspects through sufficient confrontation and examination during the trial”?as evidence that criminal suspicion was not established or that the judge did not have a presumption of guilt.

However, today the prosecution cited the dismissal reason, which called for determining responsibility through sufficient confrontation and examination during the trial, as one of the motivations for deciding to indict.

Meanwhile, at the Investigation Deliberation Committee meeting held on June 27, an overwhelming majority recommended ‘halt the investigation’ for Vice Chairman Lee and ‘non-prosecution’ for all related parties, but the prosecution summoned accounting experts afterward, conducted investigations to supplement the investigation team’s existing logic, and carried out additional investigations for over two months to create grounds for not accepting the committee’s recommendation.

Previously, the prosecution had followed the committee’s recommendations in eight cases, but by rejecting this recommendation, which conflicted with the investigation team’s position, it has faced criticism for rendering the system it introduced to prevent the abuse of prosecution’s exclusive right to indict meaningless.

Legality of Samsung Biologics’ Accounting Treatment and Directors’ Breach of Fiduciary Duty to Shareholders as Key Issues

During the trial, a primary issue is expected to be whether Samsung Biologics’ change in accounting standards?recognizing the call option (the right to purchase shares at a predetermined price) held by U.S. joint venture Biogen on its subsidiary Samsung Bioepis as a liability after the 2015 merger?was appropriate.

The prosecution views the 2015 merger between Samsung C&T and Cheil Industries and the subsequent accounting change at Samsung Biologics, a subsidiary of Cheil Industries, as actions taken to ensure Vice Chairman Lee’s stable succession of management rights.

Chief Prosecutor Lee said, “Call options can be either liabilities or assets depending on the case, but in this case, even professors who do not consider it accounting fraud agree that it is a liability.”

However, opinions are sharply divided among accounting and legal experts on this matter.

Additionally, from a legal standpoint, the establishment of breach of fiduciary duty charges applied additionally by the prosecution to Vice Chairman Lee and others, and whether directors’ breach of fiduciary duty to shareholders is valid, is expected to be a key issue in relation to existing Supreme Court positions.

In Vice Chairman Lee’s case, the verdict will likely depend on whether the prosecution can present decisive evidence in court supporting Lee’s instructions or collusion, which have not yet been revealed.

Legal Team: “Investigation Aimed at Prosecuting Vice Chairman Lee Jae-yong from the Start”

Meanwhile, Samsung’s legal team strongly criticized the prosecution in a statement issued immediately after the announcement of the investigation results.

The legal team stated, “The investigation team applied for an arrest warrant after requesting a review by the Investigation Deliberation Committee, and when the committee overwhelmingly decided to halt the investigation and not prosecute, the team repeatedly added charges such as breach of fiduciary duty, which had not even been submitted to the committee. This pattern of the investigation team can only be seen as conducting the investigation with the predetermined goal of prosecuting Samsung Group and Vice Chairman Lee Jae-yong rather than seeking substantive truth based on evidence.”

They added, “Although it is claimed that conclusions were drawn through meetings of chief prosecutors and expert consultations, this is nothing more than a trick to overturn the neutral and objective conclusions of the Investigation Deliberation Committee, which was introduced to democratically control the exercise of prosecutorial power.”

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