Samsung Heir & Other Officials Indicted on Illegal Transactions, Stock Manipulation & More

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In a case that's shaking white collar crime news, The Central District Prosecutor's Office in South Korea indicted Samsung heir Lee Jae-yong and 11 other Samsung officials on various charges including illegal transactions, stock manipulation, and perjury.

Samsung has experienced its fair share of legal trouble in recent years, and this case only compounds on that trend. Whether Lee Jae-yong and other officials receive convictions could set a new precedent for white collar crime in South Korea, and have global ramifications for national South Korean companies and partners.

Today, we're looking at Samsung's history of legal issues, the charges Lee and other officials face, and how this case may affect business law going forward.

Samsung & the Law: a Troubled History

Samsung's no stranger to legal issues, but the last five years, in particular, have seen the company in some hot water.

The trouble started with a 2015 merger that kicked off between Samsung C&T and Samsung Electronics. Lee wanted to incorporate Samsung C&T into Samsung Electronics, the company he was (and still is) vice-chairman of. The move would considerably increase how much Lee and his father, Samsung Electronics chairman Lee Kun-hee, owned of the Samsung empire.

Despite facing considerable pushback from C&T stakeholders, including US hedge fund Elliot Associates, the merger pushed through. Elliot Associates claimed the merger undervalued C&T while overvaluing Chiel Industries, the holding company Lee used to execute the merger.

Despite pushback from shareholders, C&T approved a $7.7 billion all-stock takeover from Chiel Industries, the holding company Lee used to conduct the merger. The Lees ended up owning another 4% of the Samsung empire as a result.

But that wasn't the end of the story. In 2017, South Korean news organization and CNN affiliate JTBC uncovered a tablet computer belonging to Choi Soon-sil. Choi, a controversial figure, acted as then-President Park Geun-hye's unofficial advisor.

Data from the tablet showed that Choi abused her closeness to the President to receive secret government documents, which she then used to tamper with government affairs and manipulate powerful individuals. For example, Choi obtained academic favors for her daughter from a prestigious university in a move reminiscent of the celebrity college scandal that rocked US ivy leagues earlier this year.

The data also unveiled that a number of powerful South Korean businesses leveraged their ties to the government, especially Choi and Park, to push for certain business deals.

Lee was implicated in the scandal, which revealed that he used his connections to Choi and Park to push the C&T merger through.

The scandal devastated the South Korean political landscape. The country's parliament voted 234 to 56 to impeach Park, who then stood trial for corruption charges.

Lee also stood trial in one of the most publicized white collar crime cases in the country's history. Prosecutors accused him of abusing ties to government officials and confidential entities, spending millions to curry favor with Park and Choi. Ultimately, the jury sentenced Lee to five years in prison. Samsung went on to appeal the sentences.

Where We Are Today

However, Lee's sentence was short-lived. Less than a year later, a South Korean appeals court threw out several of the charges, reducing the sentence to two and a half years and suspending it for four. He was a free man once again (at least, for the time being).

Legal scholars were hardly surprised. Lee's own father was indicted on corruption charges twice, and both times received a pardon for his "contributions to the economy." Executives in businesses like Samsung, which generate significant capital for the South Korean economy, rarely get stuck with long-lasting sentences.

According to the University of Southern California's Korean Studies Institute Director, David Kand, jail is "like a rite of passage... the question will really be, how long does he serve?"

Now, as Lee and 11 other Samsung officials face charges of stock manipulation, illicit lobbying, and perjury, that question seems more pertinent than ever.

The charges Lee currently faces are still tied to the 2015 merger, with prosecutors claiming they have evidence Lee and other Samsung officials illegally disseminated false information to devalue C&T. Samsung contests the charges, which scholars expect will escalate to the South Korean Supreme Court before a judgment is handed down.

Why Should US Businesses Pay Attention to the Case?

The Samsung conglomerate's combined businesses account for a whopping 15% of South Korea's economy.

Although Lee's father currently acts as Samsung's chairman, many South Korean business executives and pundits assume that Lee is the company's de facto leader, since the elder Lee has struggled with health problems for years. If the South Korean Supreme Court actually hands a hefty jail sentence down to Lee, it will destabilize Samsung, meaning changes for its leadership culture.

The market isn't optimistic about the Court's chances. Even after Lee's recent indictments, shares for Samsung Electronics ended at +0.04%.

If Lee gets a harsh sentence, it will change how South Korean companies operate, and as a result, change how global partners interact with South Korean enterprises. On the other hand, if Lee gets a slap on the wrist or avoids a sentence entirely, South Korean businesses will keep pushing the boundaries of how much they can meddle with government affairs.

At The Law Offices of Daniel J. Miller, we can help you navigate your white collar crime case with confidence. We'll work with you to understand every facet of your case and help you proceed towards an ideal outcome.

To schedule a consultation with our team, contact us online or via phone at (757) 267-4949.

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