‘Samsung Merger Support Pressure’ Moon Hyung-pyo and Hong Wan-seon Sentenced to 2 Years and 6 Months in Prison

Court: "Interference in National Pension Service's Individual Voting Rights Despite Independence Guarantee... Support for Unfavorable Proposals"
Supreme Court: "Determined That Stock Purchase Price Offered to Shareholders Opposing Merger Was Low"

▲Moon Hyung-pyo, Chairman of the National Pension Service.
[Photo by Asia Economy DB]

[Asia Economy Reporter Heo Kyung-jun] The Supreme Court's 3rd Division (Presiding Justice Lee Heung-gu) on the 14th upheld the original court ruling that sentenced former Minister Moon to 2 years and 6 months in prison for abuse of authority and obstruction of rights, and former Headquarters Chief Hong to 2 years and 6 months in prison for violating the Act on the Aggravated Punishment of Specific Economic Crimes (breach of trust).

Former Minister Moon was tried on charges of exerting influence to make the National Pension Service, a major shareholder of both Samsung C&T and Cheil Industries, vote in favor during their merger in July 2015 despite anticipated losses.

Former Headquarters Chief Hong is accused of instructing the creation of a report that exaggerated the merger synergy (profits) to encourage the National Pension Service Investment Committee members to support the merger, and that the merger, which undervalued Samsung C&T's stock, caused a loss of 138.8 billion won to the National Pension Service.

The first trial court sentenced former Minister Moon to 2 years and 6 months in prison, stating that he "interfered with the exercise of individual voting rights of the National Pension Service, which guarantees independence, by exerting pressure on the National Pension Service Fund Management Headquarters through Ministry of Health and Welfare officials." Regarding former Headquarters Chief Hong, the court said he "used various improper methods to induce approval of the merger proposal unfavorable to the fund." The appellate court upheld the first trial's judgment.

The Supreme Court also agreed with the lower courts' rulings. The bench ruled, "There is no error in the original judgment that violates the rules of logic and experience, exceeds the limits of free evaluation of evidence, or misinterprets the law affecting the verdict."

With the final ruling on these two individuals on this day, only the retrial of former Presidential Chief of Staff Kim Ki-chun and former Blue House Senior Secretary for Political Affairs Cho Yoon-sun, who were indicted in the 'cultural blacklist' case among the Park Geun-hye administration's state corruption scandals, remains.

Meanwhile, the Supreme Court confirmed the appellate court's decision setting the stock purchase price at 66,602 won in a case where former Samsung C&T shareholders who opposed the merger with Cheil Industries requested the court to determine the stock purchase price.

The Supreme Court's 1st Division (Presiding Justice Park Jung-hwa) stated, "Although the merger was not publicly disclosed, major participants in the capital market had already anticipated the merger beforehand, so the market price around the date stipulated by the Capital Market Act and its enforcement decree (the day before the board resolution on the merger) was affected by the merger." It added, "If the controlling shareholder secures management rights over the entire affiliated company, effectively allowing the controlling shareholder to choose the most advantageous merger timing, such circumstances alone may cause the market price of a specific company's stock to be formed higher or lower than a fair price."

It further ruled, "The day before the board resolution is not a reasonable standard for calculating the fair purchase price of the former Samsung C&T stock," and "The most reasonable time to exclude the merger's influence as much as possible, closest to the exercise date of the applicants' stock purchase rights, is around the time when Cheil Industries' new listing concretized the merger possibility."