Samsung chairman awaits appellate court ruling on 2015 affiliate merger

Lee unlikely to go abroad during Lunar New Year holiday

By Park Jae-hyuk

Samsung Group is paying close attention to next week’s appellate court ruling on Samsung Electronics Executive Chairman Lee Jae-yong's alleged involvement in the controversial 2015 merger between Samsung C&T and Cheil Industries, which played a critical role in him gaining control of Korea’s largest conglomerate.

Although Lee was acquitted of all 19 charges in the lower court trial, prosecutors have revised the indictment, introducing 2,300 new pieces of evidence and seeking a five-year prison sentence. A not-guilty verdict would free him from years of legal uncertainty, while a conviction could plunge Samsung Group into a new wave of turmoil.

According to industry officials, Lee did not make his regular visits to Samsung’s overseas operations during the past weeklong Lunar New Year holiday. Instead, he spent the time preparing for possible scenarios related to the trial, which is slated for Feb. 3 at the Seoul High Court.

During the past decade, Lee has gone abroad during the Lunar New Year and Chuseok holidays almost every year, to check the operations of Samsung’s overseas units and encourage employees.

Last year, in February, he went to Malaysia during the Lunar New Year holiday to inspect Samsung SDI’s factory there. Later, in September, he traveled to Israel, Egypt and Saudi Arabia to check on the operations of Samsung Electronics and Samsung C&T.

Since the Seoul Central District Court cleared Lee of all charges in February last year, legal experts generally expect that the upper court will likely uphold the lower court’s decision. However, they also caution that another twist could occur due to a separate court ruling on the accounting practices of Samsung Biologics, which was, at the time, a subsidiary of Cheil Industries.

Last August, the Seoul Administrative Court partially upheld the financial regulator’s claim that Samsung Biologics had altered accounting standards to artificially inflate Cheil Industries' valuation, ultimately benefiting Lee in the merger between Samsung C&T and Cheil.

Last September, the National Pension Service filed a civil suit against Lee, seeking to recover the state pension fund’s losses from the 2015 merger of the Samsung affiliates. This claim was contrary to the local court’s ruling, which had denied that the merger caused financial losses to Samsung C&T’s shareholders.

Civic groups also believe that Lee has committed a serious financial crime.

“This case is a very serious financial crime, which disrupted economic justice and the capital market’s order, considering the betrayal of trust among domestic and foreign investors in soundness and fairness of the Korean market and corporate management,” a group of liberal organizations and labor unions said in a letter to the appellate court on Jan. 16.

“We should now put an end to unfair practices of exempting conglomerates from the judicial order and should restore trust in economic and legal justice,” they added.

In his concluding testimony last November, Lee emphasized that the merger had been intended to guarantee his company’s survival and sustainable growth, not to benefit himself or to deceive investors.

“I am well aware of grave concerns about Samsung’s future,” he said. “Although the reality facing us is tougher than ever before, we will definitely overcome difficulties and take a step forward.”