Court to rule on Samsung chief's alleged 2015 merger fraud

Samsung Electronics Chairman Lee Jae-yong attends his final hearing involving a case on merger fraud, at Seoul Central District Court on Nov. 17, 2023. (Yonhap)

A Seoul district court is set to deliver a decisive ruling on Monday for Samsung Electronics Chairman Lee Jae-yong over the 2015 merger fraud case, under which he could face a prison term.

The Seoul Central District Court will issue its decision on Lee, along with 14 current and former employees of Samsung, on charges of rigging company valuations and accounting fraud connected to the controversial 2015 merger of two Samsung affiliates -- Cheil Industries and Samsung C&T Corp.

The final ruling will come in three years and five months since the prosecutors brought the case to the court in September 2020. The verdict hearing, which was originally set to take place on Jan. 26, was pushed back after both Lee and the prosecution submitted additional materials, including written opinions after the final hearing which was held on Nov. 17, 2023.

In the November trial, the prosecution demanded a prison term of five years and a fine of 500 million won ($373,000) for Lee.

The prosecution argues that Lee and the company executives planned and executed a series of illegal steps in the process of merging Samsung Group's construction and fashion companies. The prosecutors allege the illegal processes allowed Lee to increase his control over the conglomerate.

Lee denies all charges, saying his decisions at the time were made to enhance the competitiveness of the two companies.

"My goal was to keep the company surviving and growing while earning support from the employees, stakeholders and the people. The merger of the two companies was part of the effort towards that goal," Lee said in testimony during the final hearing in November last year.

"I have never prioritized my personal interests in the process of the merger, and I swear I also have never imagined I would increase my shares and hurt other shareholders."

Over the envisioned court ruling, industry observers raise concerns of possible leadership vacuum, at a time when the company is experiencing the worst earnings record after a severe downturn in the global semiconductor industry.

In the fiscal year of 2023, Samsung posted 6.56 trillion won in operating profit, down 84.9 percent from a year earlier. It is the first time that the tech giant logged an annual operating profit of less than 10 trillion won since 2008, when it posted 6.03 trillion won amid the global financial crisis.

Its annual net profit tumbled 72.2 percent on-year to 15.48 trillion won, with sales plunging 14.3 percent on-year to 258.93 trillion won.

The yearslong court disputes also appear to have taken a toll on Samsung's business management. As the court trails have proceeded, Samsung has carried out small and mid-sized mergers. But the company has continued to fail to keep its promise of signing big deals since it acquired Harman for 9 trillion won in 2017.

Samsung has also given way to its archrival Apple regarding smartphone shipment volume in 2023 for the first time in 13 years of being the world's largest smartphone maker.

"Samsung has barely been maintaining the status quo with the ongoing legal disputes. Taking the economic slump into consideration, Samsung still has lost its luster of the past," an industry official said under the condition of anonymity.

Even if the Samsung chief is found innocent, industry watchers believe the legal dispute is likely to continue as the prosecution is expected to file an appeal.

By Jo He-rim(herim@heraldcorp.com)