Samsung Heir Lee Jae-yong Indicted Again | Scaringi Law

The Seoul Central District Prosecutors' Office in South Korea indicted Samsung heir and vice-chairman Lee Jae-yong, as well as 11 other Samsung officials, on a variety of charges, including illegal transactions and lobbying, stock manipulation, and perjury.

The indictment marks yet another incident in Samsung's troubled legal history in recent years. While Lee and other officials were not detained, legal experts suspect the case could reach the Supreme Court, and its outcome could set far-reaching business law precedents in South Korea and across the globe.

Today, we're exploring Samsung's tumultuous history with the law, the company's stance on the current charges, and why US business leaders should be paying attention to this case.

What Started It All: Samsung's 2015 Merger

To understand the current charges against Lee, we have to explore where it all started: A 2015 merger between Samsung C&T and Samsung Electronics.

At the time, Lee was (and still is) vice-chairman of Samsung Electronics, acting under his father, chairman Lee Kun-hee. While the senior Lee remains chairman of the company, his deteriorating health after a 2014 heart attack has caused many business leaders to view the younger Lee as Samsung Electronic's de facto leader.

In South Korea, family-run business conglomerates have a great deal of power. For a long time, the Lees wanted to incorporate Samsung offshoot Samsung C&T into Samsung Electronics, strengthening their hold on the Samsung empire.

Samsung C&T Shareholder and US hedge fund Elliot Associates opposed Samsung Electronic's takeover of C&T, claiming the merger undervalued C&T while simultaneously overvaluing Cheil Industries, the holding company Lee leveraged to propose the merger. However, despite Elliot Associate's concerns, C&T Shareholders approved a $7.7 billion all-stock takeover offer from Chiel Industries in 2015, effectively giving the Lees control over another 4% of the Samsung empire.

But, all was not as it seemed.

South Korea's 2017 Corruption Scandal

In 2017, reporters at CNN affiliate news organization JTBC found a tablet computer belonging to Choi Soon-sil, a close friend and unofficial advisor of then-president Park Geun-hye.

The tablet's data was damning, indicating that Choi received secret documents from the government and abused sensitive information to tamper with government affairs. For example, Choi used her position of power to obtain academic favors for her daughter from a prominent women's university in South Korea (a similar scandal recently rocked US ivy leagues earlier this year).

Among the individuals implicated in the scandal was Lee Jae-yong, vice-chairman of Samsung Electronics. The documents unveiled that Lee had used political connections, including to Choi and Park, to push the C&T merger through.

The scandal rocked South Korea. The country's parliament voted 234 to 56 to impeach Park, after which the president stood trial on charges of corruption.

Lee also stood trial. Prosecutors showcased evidence indicating that Lee interfaced with various confidential entities, and that Samsung spent millions currying Park and Choi's favor to expedite business operations. The jury sided with the prosecution, and Lee was sentenced to five years in prison. Various other Samsung officials implicated in the scandal also received prison sentences. Samsung announced its intention to appeal the sentences shortly after the trials ended.

A Short-Lived Prison Sentence

Less than a year after his sentencing, a South Korean appeals court threw out several of the charges against Lee when reviewing the case. The court reduced Lee's sentence to two and a half years, and suspended it for four years. At the end of the process, Lee walked free again.

For legal experts, the trajectory of Lee's case followed a familiar pattern. His father, the senior Lee, was charged with corruption twice—both times, courts pardoned him for his "contributions to the economy."

Director of the University of Southern California's Korean Studies Institute, David Kang, predicted Lee's release almost as soon as he was incarcerated. According to Kang, serving jail is "like a rite of passage... the question will really be, how long does he serve?"

Lee Faces New Charges: An Unexpected Complication?

However, the recent stock manipulation, illicit lobbying, and perjury charges against Lee may throw a wrench in the familiar cycle that often ends with executives walking free from corruption scandals. Prosecutors claim they have strong evidence that Lee and other Samsung Electronics executives illegally spread false information to reduce C&T's value (with the help of Park and Choi), engaged in illegal lobbying, and manipulated stock prices to secure a more favorable deal on the merger.

Samsung's lawyers contest the charges, stating that Lee and other executives complied with government regulations while conducting the merger. Samsung's legal team has attempted to cast the case against Lee as something of a witch hunt, stating that the investigation began "with the aim of prosecuting Lee Jae-yong from the beginning, rather than seeking the actual truth according to evidence."

Legal experts expect the case to escalate to South Korea's Supreme Court, and predict a contentious battle between the Seoul Central District Prosecutors' Office and Samsung's lawyers.

Why Should US Business Leaders Care?

According to CNN, "Samsung is South Korea's biggest conglomerate. Its combined businesses are estimated to account for around 15% of the country's entire economy."

In the past, as we mentioned, South Korean executives have often been pardoned for their role in helping the country's economy. The expectation that executives will escape corruption scandals virtually unimpeded undoubtedly plays a role in how the stock market values South Korean companies during corruption scandals. Even after Lee's most recent indictment, shares for Samsung Electronics ended at +0.04%.

However, if a jury sentences Lee harshly—and Samsung lawyers fail to successfully appeal the sentence—it could have lasting ramifications on South Korean businesses and the stock market. If investors stop expecting business leaders to walk away from corruption scandals unharmed, they could be more reticent to invest in companies like Samsung that have experienced a slew of legal troubles in recent years, or pull their investments when a new scandal hits.

In a globalized world, anything that affects an enterprise as large as Samsung will have a ripple effect. The outcome of this case could have a significant impact on Asian tech companies and the US stock market.

If you're engaged in a business law case, we can help. At Scaringi Law, we work with businesses to help them navigate litigation disputes with ease.

To schedule a consultation with our team or learn more about the services we provide, contact our office at (717) 775-7195.

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