Is the 'Samsung Judicial Risk' Coming to an End? All Eyes on Lee Jae-yong's Final Statement

3-Year Legal Battle Over 'Samsung Merger' Decision This Week
Lee Jae-yong at a Crossroads in Management Activities

The trial over the 'unfair merger allegations between Samsung C&T and Cheil Industries,' which has held back Samsung Electronics Chairman Lee Jae-yong for over three years, is set to reach its final stage on the 17th. Given the case's vast and complex nature, it is still difficult to predict the trial's outcome, but if found guilty, it is expected to once again hinder Chairman Lee's management activities. Attention is also focused on Lee's final statement. In December 2020, during the final statement of the National Pension Service scandal trial, Lee shed tears and vowed to become a 'Seung-eo-bu' (勝於父, surpassing his father). This time, many are watching to see what message he will convey.

Lee Jae-yong, Chairman of Samsung Electronics.

Samsung Merger Verdict Hearing on the 17th... Sentencing Likely to Extend into Next Year

The Seoul Central District Court Criminal Division 25-2 (Presiding Judges Park Jeong-je, Ji Gwi-yeon, Park Jeong-gil) will hold the verdict hearing on the 17th for Chairman Lee and 14 others, including former Samsung Electronics Future Strategy Office head Choi Ji-sung and former deputy head Jang Chung-gi, who are charged with violating the Capital Markets and Financial Investment Business Act, among other allegations.

The verdict hearing is a procedure before the sentencing trial, where the prosecution requests the court for the level of punishment and listens to the defendants' final statements. Considering that sentencing usually occurs one to two months after the verdict hearing, a ruling could be delivered within this year. However, given the vast amount of evidence?190,000 pages of investigation records and four volumes of evidence lists?the sentencing is likely to be postponed until next year.

Chairman Lee was indicted in September 2020 on charges of planning the merger between Samsung C&T and Cheil Industries in 2015, led by the Future Strategy Office, with the purpose of succession of management rights, during which accounting fraud and unfair transactions were allegedly committed.

The prosecution believes the Future Strategy Office disseminated false information or concealed facts to favor Lee's succession of management rights and strengthen group control, and engaged in illegal lobbying to secure the National Pension Service's voting rights. At the time, Lee held 23.2% of Cheil Industries' shares but had no stake in Samsung C&T, a core affiliate in Samsung Electronics' governance structure. The prosecution suspects that Lee sought to lower Samsung C&T's value to secure a larger share during the merger process, thereby strengthening his control over Samsung Electronics. Additionally, the prosecution alleges that Samsung BioLogics, a Cheil Industries subsidiary, inflated its assets by over 4 trillion won through accounting fraud to secure a favorable merger ratio.

Samsung argues that the merger ratio between listed companies is typically determined based on the average stock price over a certain period, so there was no problem with the ratio calculation. They claim that shareholders' interests were sufficiently considered, there was no illegal stock price manipulation, and most accounting experts opined that the accounting controversy did not violate accounting standards. Chairman Lee also asserts his innocence, stating that he was not informed of most details during the merger process.

Photo by Yonhap News

Seven Years of Judicial Risk... Can the 'New Samsung' Challenges Be Overcome?

In the business community, the first trial's outcome is seen as a turning point for Chairman Lee's judicial risks, which have persisted for over six years, including the National Pension Service scandal. The prevailing view is that the scope of Lee's management activities depends on the court's ruling.

Currently, Samsung is recording a cumulative loss of 12.7 trillion won in its core semiconductor business through September this year due to the global economic downturn. Although an improvement in the semiconductor market is expected from the end of this year, concerns about future growth are urgent amid global advanced technology supremacy competition. The need to rebuild the group's control tower is also consistently raised. The timing for Chairman Lee's return as a registered director of Samsung Electronics must also be decided for responsible management.

If acquitted, Chairman Lee will be able to focus on addressing these 'New Samsung' challenges. However, if found guilty, he is likely to be again entangled in judicial risks, restricting his management activities. Following the first trial's sentencing, appeals by the prosecution or Lee could lead to a second trial, and if it proceeds to the Supreme Court, the judicial risks will be prolonged.

There is also a possibility of being embroiled in damages lawsuits with the National Pension Service and others. The National Pension Service, which held an 11.21% stake in Samsung C&T at the time of the merger, claims it suffered significant losses due to Samsung. Kim Tae-hyun, the National Pension Service director, stated at the National Assembly Health and Welfare Committee's audit on the 20th of last month, "The first trial regarding Chairman Lee Jae-yong related to the Samsung C&T and Cheil Industries merger is underway," and added, "Once the verdict is out, we will prepare damages lawsuits against Chairman Lee, former Minister Moon Hyung-pyo, and former director Hong Wan-seon."

Seoul Samsung Electronics Seocho Building. Photo by Jinhyung Kang aymsdream@

What Will Be Lee Jae-yong's Final Statement? ... Expected to Be a Sincere Confession Surpassing 'Seung-eo-bu'

There is also interest in the direction of Chairman Lee's final statement.

Previously, during the verdict hearing of the National Pension Service scandal, Lee reflected on his four years of trial experience and intertwined his management philosophy and aspirations with anecdotes from when he began working seriously at Samsung over 20 years ago. He shed tears and choked up every time he mentioned his father, Chairman Lee Kun-hee, struggling to continue speaking.

In this final statement, Chairman Lee is expected to convey a message of practicing compliance management and responsible management. He is likely to emphasize his commitment to establishing a compliance culture, including strengthening board-centered responsible management and introducing a system of appointed outside directors. Having shed the vice chairman title last year after ten years and assuming the chairman position, he is expected to offer a sincere and heartfelt confession befitting his role.

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