‘Samsung Merger’ First Trial Concludes After 3 Years... Focus on How Many Years Prosecutors Will Seek

Prosecutors: "Merger for management succession... causing damage to company and shareholders"
Samsung: "Merger due to business needs... response to changing regulatory environment"

The trial concerning Samsung Electronics Chairman Lee Jae-yong's alleged unfair merger of Samsung C&T and Cheil Industries is coming to a close after more than three years.

Samsung Electronics Chairman Lee Jae-yong is attending the continuation of the first trial related to 'accounting fraud and unfair merger' held at the Seoul Central District Court in Seocho-gu on the morning of the 27th of last month.
[Photo by Yonhap News]

The Seoul Central District Court Criminal Division 25-2 (Presiding Judge Park Jeong-je, Judges Ji Gwi-yeon and Park Jeong-gil) will hold the closing arguments on the 17th at 10 a.m. regarding charges including violations of the Capital Markets Act and Financial Investment Services Act against Chairman Lee and 13 others. The prosecution will present its sentencing recommendation for Chairman Lee, the court will hear mitigating and aggravating factors, and then listen to Lee's final statement.

Chairman Lee was indicted in September 2020 on charges of planning the merger of Samsung C&T and Cheil Industries in 2015 under the leadership of Samsung's Future Strategy Office to secure succession of management rights, during which he allegedly committed accounting fraud and unfair transactions.

The key issue in the trial was whether there was an organized effort by Samsung Group to arrange a merger ratio favorable to Vice Chairman Lee during the 2015 Samsung C&T merger. The prosecution argues that Samsung Group inflated the value of Cheil Industries and deliberately undervalued Samsung C&T to increase Vice Chairman Lee's control over the group.

Another point of contention is the accounting fraud allegations related to Samsung Biologics that surfaced during this process. The prosecution claims that Samsung Biologics, of which Cheil Industries was the largest shareholder at the time, violated accounting rules related to call options in its 2015 financial statements to avoid capital impairment and systematically concealed this fact.

Samsung rebutted the prosecution's claims by stating, "The merger was a legitimate business activity driven by management needs." Samsung's side argued, "The merger was pursued due to various factors including the business necessity of Samsung C&T and Cheil Industries, resolving circular shareholdings, simplifying the governance structure, responding to regulatory changes and social demands, and stabilizing management control of C&T."

Regarding the prosecution's claim that the merger constituted a breach of fiduciary duty causing losses to Samsung C&T shareholders, Samsung countered, "The board of directors and management judged that the merger would benefit the company and proceeded accordingly, and no losses occurred to the company or shareholders as a result of the merger."

Since sentencing hearings are typically scheduled one to two months after closing arguments, Chairman Lee's trial could conclude with a verdict within this year at the earliest. However, legal circles believe that the sentencing hearing is more likely to be held next year.