19 Charges Including Unfair Merger and Accounting Fraud
Acquitted in Both First and Second Trials
Court Rejects Prosecution's Evidence
"No Intentionality" in Accounting Fraud Allegation
Samsung Electronics Chairman Lee Jae-yong was acquitted again in the appellate trial on charges of unfair merger and accounting fraud, freeing him from eight years of 'judicial risk' shackles.
Samsung Electronics Chairman Lee Jae-yong, who is on trial for unfair merger and accounting fraud charges related to management succession, is attending the appellate court sentencing hearing held at the Seoul High Court in Seocho-gu, Seoul on the 3rd. Photo by Kang Jin-hyung
The Seoul High Court Criminal Division 13 (Presiding Judge Baek Gang-jin) on the 3rd acquitted Chairman Lee, who was charged with 19 counts including unfair trading and market manipulation under the Capital Markets Act and breach of trust, as in the original trial, and dismissed all appeals by the prosecution. Thirteen others, including former Samsung Group Future Strategy Office Chief Choi Ji-sung and former Future Strategy Office Strategy Team Leader Kim Jong-jung, who were also indicted, were acquitted as well.
The court did not recognize the evidentiary value of key evidence submitted by the prosecution in the appellate trial, as it did in the first trial. The court stated, "Investigative agencies must make efforts to comply with legal procedures to the maximum extent possible within the given circumstances," and added, "In such special situations with certain constraints, the prosecutor also bears the burden of proof regarding what alternatives exist to secure legality in the search and seizure procedures."
The court sequentially dismissed the prosecution's claims regarding contentious issues such as the merger ratio and timing between Samsung C&T and Cheil Industries. The claim that the merger report of the two companies was manipulated to facilitate Chairman Lee's succession of management rights and strengthen control was also rejected. The court said, "While it is not impossible to interpret the documents as the prosecution claims, there is sufficient room to consider that the Future Strategy Office roughly reviewed them and that the two companies conducted the full review."
In particular, although the first trial ruling by the Seoul Administrative Court, which found some accounting fraud at Samsung BioLogics, emerged as a variable in this appellate trial, the court ruled that "it is difficult to see intentionality beyond negligence." Previously, in August last year, the Seoul Administrative Court ruled that Samsung BioLogics' accounting treatment of loss of control over Samsung Bioepis in 2015 violated accounting standards, stating, "The loss of control was accounted for without any reasonable grounds, mainly to avoid issues such as capital erosion." Reflecting this ruling, the prosecution amended the indictment during the second trial process.
Regarding this, the court explained, "Since the fact that Samsung BioLogics would lose control over Bioepis if the call option were exercised was a very significant risk, it should have been disclosed at that time," but added, "However, it appears that the defendants made accounting decisions after their own judgment rather than concealing the facts." The court judged, "Although some defendants engaged in inappropriate acts such as revealing specific intentions or directions or manipulating documents, the result of the accounting treatment corresponded to the economic substance of Samsung BioLogics' 'loss of control' over Bioepis, and contrary to the prosecution's claims, there was at least minimal rationality in reaching that judgment."
Furthermore, the court added, "It was a complex accounting issue where even experts had conflicting conclusions during the supervisory agency's post-audit process," and "In such circumstances, it is difficult to conclude that Samsung BioLogics had a definitive awareness of violating accounting standards, nor was it judged to necessarily violate principle-based accounting treatment."
Samsung Electronics Chairman Lee Jae-yong, who is on trial for unfair merger and accounting fraud charges related to management succession, is attending the appellate sentencing hearing held at the Seoul High Court in Seocho-gu, Seoul on the 3rd. Photo by Kang Jin-hyung
The court stated, "Even considering all reasons together, the evidence does not prove the charges in this case beyond a reasonable doubt," and "The prosecution's appeal against the defendants is groundless, so all appeals are dismissed, and the original acquittal verdict is upheld."
Earlier, Chairman Lee was indicted in September 2020 on charges of involvement in various unfair trades, market manipulation, and accounting fraud pushed by the Future Strategy Office during the merger process of Samsung C&T and Cheil Industries, aimed at stably succeeding management rights at minimal cost and strengthening control. In February last year, the first trial court acquitted him of all 19 charges, stating that the merger of the two companies was not solely for Lee's succession or strengthening control, and there was no evidence to prove that the unfair ratio caused damage to shareholders.
Meanwhile, the investigation into Chairman Lee began in November 2018 when the Securities and Futures Commission under the Financial Services Commission filed a complaint against Samsung BioLogics President Kim Tae-han for accounting fraud. The case was assigned to the Special 2nd Division of the Seoul Central District Prosecutors' Office. It took 21 months until the investigation results were announced in September 2020. According to Lee's legal team, during this period, about 300 people were investigated in approximately 860 sessions, and 53 locations were searched. However, with this acquittal, Lee's judicial risk, which had lasted for eight years, has been resolved. From the prosecution's perspective, the trial, which maintained the indictment through intensive investigations including questioning 300 people and searching over 53 locations, ended in a complete defeat as all 19 charges were acquitted again in the second trial.
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