Samsung Electronics Chairman Lee Jae-yong was found not guilty by a South Korean court on charges of stock manipulation and accounting fraud related to a merger that helped him secure control of Samsung Group. Lee was indicted in 2020 for allegedly engaging in various fraudulent transactions, stock price manipulation, and accounting irregularities during the merger of two Samsung affiliates in 2015 - Cheil Industries and Samsung C&T Corporation - to ensure his succession at the lowest possible cost.
But a Seoul district court acquitted Lee of all 19 charges, citing lack of evidence. Thirteen other defendants were also acquitted, including former Samsung Group executives Choi Gee-sung and Kim Jong-jung.
The prosecutor’s charges were unreasonable to begin with. The Prosecution Review Committee of external experts concluded that no crime had been committed and advised against indicting Lee in June 2020. A warrant for Lee’s arrest was initially rejected based on insufficient grounds.
Yet the prosecution ignored the advice and conducted an extensive investigation, issuing 430 summonses and carrying out over 50 raids on more than 110 employees. The investigation began under then Seoul Central District Prosecutor Yoon Suk-Yeol, the current South Korean president. But the investigation gained momentum after Lee Sung-yoon, a close confidant of former President Moon Jae-in, took hold of the prosecution. The former administration’s anti-business stance may have influenced the prosecution’s aggressive investigation.
Allegations that Lee manipulated the stock prices of two Samsung affiliates to strengthen his control over the conglomerate were contentious from the start. Prosecutors accused Lee of inflating the value of Cheil Industries, where he holds a significant stake, to the detriment of Samsung C&T shareholders. However, the court found no evidence supporting these claims, stating that “there is no proof that the merger ratio was unfair, nor does it appear that the merger was intended to harm shareholders.” Regarding the accusations that Lee falsified Samsung Biologics’ accounting records to boost the value of Cheil Industries, the court stated that it has failed to detect any deliberate wrongdoing or breach of accounting standards.
The prosecutor’s major charges have all been denied, marking the end of a prolonged legal ordeal that labeled the head of the country’s largest conglomerate a criminal suspect for three years and five months.
Lee spent a year and a half in prison after he was convicted of offering bribes to then-President Park Geun-hye and her close confidante and was entangled in various legal disputes for the past nine years. In the 2016 case, he was accused of “implying favors” to the former president, an unfair accusation considering that businessmen are expected to comply with presidential requests.
Even after Lee was granted a pardon on National Liberation Day last year, he made court appearances for the so-called succession case at least once or twice a week. He also had to receive permission from the court to make overseas business trips. Frequent trials nearly prevented Lee from meeting U.S. President Joe Biden at Samsung’s semiconductor factory during his visit in 2022. No other country would harass and put its leading company under such intense scrutiny for such a long time.
While Samsung navigated legal challenges, global competitors such as Apple and Taiwan’s TSMC seized the opportunity to increase their market presence by ramping up investment. Samsung’s share in the global smartphone market has declined. The company’s position in the system semiconductor sector also experienced setbacks as the gap between Samsung and the leading company widened. While the global tech sector underwent a wave of mergers and acquisitions (M&As), Samsung missed out on M&As needed to fuel growth because the top executive who makes these decisions has been mired in legal disputes. The South Korean economy ultimately suffered from this investigation, given that Samsung is responsible for 20% of the country’s total exports. This case underscores the need to reevaluate the anti-business sentiment prevalent in Korean society and calls for a change in the investigatory practices of prosecutors.
