Eyes on November Trial for 'Unfair Merger and Accounting Fraud'... Lee Jae-yong's Judicial Risk at a Critical Juncture

As November begins, the attention of the legal and business communities is focused on the trial of Samsung Electronics Chairman Lee Jae-yong for 'unfair merger and accounting fraud.' Samsung Electronics has rebounded by significantly reducing semiconductor losses and recording operating profits in the 20 trillion won range in the third quarter of this year, raising interest in whether Chairman Lee's 'judicial risk' will also ease.

Lee Jae-yong, Vice Chairman of Samsung Electronics. / Photo by Jinhyung Kang aymsdream@

According to the legal community on the 1st, the final trial for Chairman Lee's 'unfair merger and accounting fraud' case will be held on the 17th. This will conclude the hearing of the case. It has been three years and two months since Chairman Lee was indicted on this case in September 2020. On that day, the prosecution is expected to explain the sentencing demands and reasons for sentencing for the 14 defendants, including Chairman Lee, former Samsung Electronics Future Strategy Office head Choi Ji-sung, and former Future Strategy Office deputy director Jang Choong-ki. Following the prosecution's demands, Chairman Lee's final statement is also expected to be delivered.

This trial is regarded as the last hurdle of the 'judicial risk' that Chairman Lee must overcome. At the same time, it is a 'critical crossroads.' He was involved in the Park Geun-hye administration's state affairs manipulation scandal, sentenced to prison, and was paroled in August 2021. He was reinstated in management last August. Since then, he has only appeared for this trial. If Chairman Lee is acquitted in this trial, it is expected that he will be relieved of the burden of judicial risk and be able to focus more on management activities. However, if an appeal is filed by either the prosecution or Chairman Lee after the first trial verdict, leading to a second trial and possibly a Supreme Court appeal, the period during which he must bear the burden of the trial could be extended.

Samsung Electronics recorded an operating profit of 2.4336 trillion won in the third quarter, entering the 'trillion won' range for the first time this year, and it is expected that the recovery trend will continue until the end of this year. The verdict for Chairman Lee, expected to be announced at the end of this year or early next year, is anticipated to have a considerable impact. The business community reportedly hopes that the first trial verdict for Chairman Lee will be delivered within this year. There is an analysis that it would be more beneficial for the Korean economy to receive the verdict and quickly absorb its aftermath within this year rather than facing the burden of the verdict going into next year.

However, the legal community views the possibility of the verdict being announced early next year as slightly higher. According to the Criminal Procedure Act, the verdict is generally delivered on the day the trial concludes, and if there are special circumstances, a separate verdict date must be set within 14 days after the trial concludes. However, according to court practice, verdicts are often delivered about a month after the conclusion of the hearing. Given that the prosecution's investigation records for Chairman Lee's case alone amount to 190,000 pages, it is expected that considerable time will be required before the verdict, making an early next year verdict possible.

The trial outcome is expected to depend on whether the merger of Samsung C&T and Cheil Industries and the accounting fraud at Cheil Industries' subsidiary Samsung Biologics can be seen as 'reasonable decisions' by the management. Chairman Lee was indicted in September 2020 on charges of illegally intervening in the merger process of Samsung C&T and Cheil Industries to strengthen group control and ensure stable succession of management rights. Subsequently, he was also indicted on charges of accounting fraud related to Samsung Biologics, a subsidiary of Cheil Industries, and the two cases were consolidated.

Some view that, in light of the recent 'accounting fraud' case involving Daewoo Shipbuilding & Marine Engineering, a key issue in Chairman Lee's trial will be whether he was aware of the accounting fraud. In the Daewoo Shipbuilding case, the court issued different rulings for former presidents Nam Sang-tae and Ko Jae-ho, who were indicted for causing damage through accounting fraud. Former President Nam was acquitted of charges of inflating operating profits through accounting fraud in 2009, reducing his initial six-year prison sentence in the first trial to five years in the second trial. This was because it was determined that Nam did not recognize or intend the company's damage. This ruling was upheld by the Supreme Court. On the other hand, former President Ko was found guilty of accounting fraud committed between 2012 and 2015, and the Supreme Court confirmed a heavier sentence of nine years in prison than that of former President Nam.

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