5-yr sentence sought for Samsung chief in connection with 2015 merger of affiliates

Prosecutors demanded a five-year prison sentence for Samsung Electronics Co. Chairman Lee Jae-yong on Friday on charges of stock price rigging and accounting fraud connected to the controversial 2015 merger of two Samsung affiliates.

Prosecutors also requested a fine of 500 million won (US$386,817) for Lee during the final hearing held at the Seoul Central District Court for the merger case.

Lee has been charged with stock price rigging, breach of duty and accounting fraud in the course of the controversial 2015 merger of two Samsung affiliates, Cheil Industries Inc. and Samsung C&T Corp.

The merger, where three Samsung C&T shares were offered for one Cheil share, helped Lee tighten his control of Samsung C&T, the de facto holding company for Samsung Group, through his 23.2 percent stake in Cheil.

The merger was seen as crucial to Lee’s succession as the heir of the family-controlled group, as his father Lee Kun-hee had suffered a heart attack the previous year.

During the hearing, Lee said the merger was part of Samsung’s broader plan to boost the competitiveness of the affiliates, refuting the prosecutors’ allegation that he intended to cause damage to other shareholders in order to increase his own shares.

“I have never prioritized my personal interests in the process of merging Samsung C&T and Cheil Industries. I and the other defendants believed that the merger would be advantageous for both companies,” Lee said in his testimony.

“As an entrepreneur, I have a responsibility to continue to create profits and jobs. I ask for an opportunity to focus all of my capabilities solely on moving forward,” he added.

Prosecutors suspect that the group manipulated the stock market to inflate the prices of Cheil and drive down Samsung C&T prices through various unfair practices, including disseminating false market information, mass purchasing the affiliates’ stocks and illegally lobbying to buy up the National Pension Service, a major Samsung C&T shareholder.

Prosecutors have concluded that the suspected devaluation of Samsung C&T resulted in losses to other investors and Lee was behind the alleged wrongdoing.

Lee is also accused of involvement in the suspected accounting fraud at Samsung Biologics, a subsidiary of Cheil Industries.

Prosecutors said Lee was in the position of ultimate decision-maker and the final beneficiary of the alleged malpractice as they demanded the sentence for Lee.

A prison sentence of 4 1/2 years and a 500 million won fine were also demanded for two senior Samsung executives, including Choi Gee-sung, a former head of Samsung’s now-disbanded control tower Future Strategy Office, on related charges.

“The current structure, under which dominating shareholders of business groups can pursue private interests, is the biggest cause deepening the ‘Korea discount’ phenomenon and a major factor debasing national competitiveness,” the prosecution said.

Korea discount refers to a tendency for South Korean firms to have weaker valuations for reasons related to local corporate practices, such as low dividend payouts or a family-owned business structure, as well as political risks involving North Korea.

“Members of our society have strived so hard to resolve this, but ironically, the efforts have been upended by Samsung, the country’s No. 1 company,” the prosecution said.

The sentence request came more than three years after Lee and the Samsung executives were indicted in September 2020 in the case. The court will hand down a ruling on Jan. 26.