South Korean prosecutors indicted Samsung Group’s Jay Y. Lee on Tuesday on allegations of accounting fraud and stock price manipulation pertaining to a 2015 merger, dealing a fresh blow to the head of one of Asia’s most valuable companies.
Lee, who has already served jail time on a separate case, and 10 other current and former Samsung executives were indicted over the controversial merger of two Samsung affiliates that helped Lee assume greater control of the group’s crown jewel, Samsung Electronics.
The indictment paves the way for Lee, 52, to undergo trial on the allegations. He will not be detained as a Seoul court denied a request from prosecutors in June for an arrest warrant. But the court had said prosecutors seemed to have secured considerable amount of evidence and it was appropriate to send the case to trial.
The decision comes as South Korean President Moon Jae-in rallies big business during a recession driven by the COVID-19 pandemic, and amid public sentiment that may be more interested in controlling the disease and reviving shrinking livelihoods than punishing Korea’s chaebol that dominate the economy.
Charges against Lee included practice of unfair transaction and manipulation of market prices under the Capital Markets Act, breach of trust during the course of business, and false disclosure and accounting fraud under the External Audit Act, prosecutors said in a statement.
“We took into account the gravity of the issue, which disturbed the order of the capital market,” said Lee Bok-hyun, senior prosecutor at the Seoul Central District Prosecutors’ Office.
Jay Y Lee’s attorneys denied the allegations in a statement, calling the indictment unjust, but said the defendants will “conscientiously participate” in a trial.
The $8 billion merger of affiliates Samsung C&T Corp and Cheil Industries in 2015 was seen as key to Lee increasing control of the sprawling group, even as critics said it rode roughshod over the interests of minority investors.
Prosecutors also alleged that Lee and other Samsung executives colluded to inflate the assets of Samsung BioLogics Co Ltd to avoid criticism that the merger was agreed at terms favourable to shareholders of Cheil Industries, which counted Lee as the biggest shareholder. Cheil was a major shareholder of BioLogics.
Prosecutors decided to indict Lee despite an independent panel’s recommendation in June against such action. The decision by the panel, which consisted of mostly non-financial experts, had invited criticism from some lawmakers and experts who raised concerns that the panel system could be abused by the country’s wealthy and powerful.
Lee’s lawyers said that prosecutors’ move “to flout the independent panel’s decision and belatedly add a breach of trust allegation suggests prosecutors conducted the investigation with the goal of prosecuting Samsung Group and Lee Jae-yong (Jay Y. Lee) from the beginning, rather than seek objective truth based on evidence.”
Lee, vice-chairman of Samsung Electronics which has a market value of $311 billion, was jailed for about a year, until his release in February 2018, for his role in a bribery scandal.
He was accused of giving horses to the daughter of a confidante of former South Korean President Park Geun-hye to win government support for the merger of the two affiliates.
Shares of major Samsung firms were largely unchanged following the announcement. Samsung Electronics was up 0.4% and Samsung C&T had risen 2.3% versus the broader market’s 1% rise.