Samsung heir indicted on charges of violating capital markets law

South Korea’s most powerful conglomerate heir Jay Y. Lee, vice chairman at Samsung Electronics Co., was indicted on Tuesday by prosecutors on charges of violating the country’s capital market law, a move against a civilian panel’s recommendation not to indict him two months ago.

The Seoul Central District Prosecutor’s Office on Tuesday indicted Lee on allegations of unfair trading, stock price manipulation, and breach of trust that are against the capital market law. Prosecutors also indicted 10 current and former Samsung Executives including Choi Gee-sung, former vice chairman and head of future strategy office, and Kim Jong-joong, former president at the office, on the allegation of engaging in a systematic effort to help transfer managerial control of Samsung to Lee.

Samsung Group immediately barked at the prosecutors’ decision, saying that targeted investigations have been carried out by prosecutors to indict the heir, and there was no new or reasonable evidence that can justify Lee’s indictment. It again denied any wrongdoing by Lee and the company officials.

The indictment comes against an outside civilian panel’s recommendation not to indict Lee in June. This is considered an unusual move considering that prosecution has followed all eight previous decisions by a civilian panel since 2018 although it is not legally bound to the panel’s recommendation. The civilian panel policy was first introduced by Korean prosecution in 2017 in a move to improve transparency and fairness in investigations. The outside panel is comprised of experts from various sectors including law, academia, and media.

Regarding its decision to go against the panel’s decision, prosecutors argued that Lee should take final legal responsibility over the alleged illegal power succession because it is a “serious issue and there is clear objective evidence.”

The indictment comes almost two years after the Securities and Futures Commission under the Financial Services Commission accused Samsung BioLogics to prosecutors of suspected accounting frauds on November 20, 2018. Prosecutors judged that the 2015 controversial merger between Samsung Group’ two key affiliates Samsung C&T Corp. and Cheil Industries was closely planned out by the group’s future strategy office to tighten Lee’s control over Samsung Empire through power succession to Lee from his ailing father and Samsung Chairman Lee Kun-hee, who has been hospitalized since 2014 after a major heart attack.

Younger Lee and the company executives are accused of intentionally lowering the value of Samsung C&T while inflating the value of Cheil Industries during the merger process of the two units in the stock swap at a rate of three Samsung C&T shares for one Cheil share to allow Lee – the largest shareholder of Cheil Industries at the time with 23.2 percent ownership – to stably secure Samsung C&T shares and enhance his control over the group in May 2015.

Prosecutors suspected various unfair practices – disseminating false information, concealing key information, engaging in illegal lobbying activities, and bulk buying treasury shares to manipulate stock price – were carried out by Samsung to ensure the smooth power succession at the group through the merger.

Prosecutors also accused Lee and executives of committing accounting fraud to inflate the value of Samsung BioLogics, an affiliate of Cheil Industries, as part of the succession plot.

Samsung BioLogics allegedly didn’t reflect the call option contract between its affiliate Samsung Bioepis and U.S. Biogen to its accounting. It was only after the 2015 merger that Samsung BioLogics calculated call option as 1.8 trillion won debt and made changes to its accounting standard to bring 4.5 trillion won worth of profit.

Prosecutors concluded that such alleged illegal activities in result ignored investor benefit for owner profit and should be accused of breach of trust. It also referred to it as an organizational act of crime against the capital market order.

Despite the indictment, prosecutors could not arrest Lee after the Seoul Central District Court in June rejected their demand to arrest him.

With the latest indictment, Lee will, however, face new trials three and a half years after he was indicted in February 2017 for allegedly bribing a confidante of now-impeached President Park Geun-hye to get approval for the 2015 merger. He was in jail for one year and walked out in February 2018, after his two-and-a-half-year sentence was suspended.

Samsung Electronics shares closed Wednesday 0.37 percent higher at 54,400 won ($46).

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