Prosecutors seek arrest warrant for Samsung’s Lee over 2015 merger of key affiliates

June 4, 2020

South Korean prosecutors on Thursday sought an arrest warrant for Samsung Group heir Lee Jae-yong, as part of an investigation into a controversial merger between two group units and a suspected accounting fraud, allegedly aimed at cementing his control over the conglomerate.

The Seoul Central District Prosecutors Office said it sought arrest warrants for Lee and two former top executives, Choi Gee-sung and Kim Jong-joong, from the group’s now-disbanded control tower, the Future Strategy Office.

Later in the day, the court announced that it will hold a hearing at 10:30 a.m. on Monday to decide whether to issue the arrest warrants. A decision is expected to come out late at night or early Tuesday.

They are suspected of involvement in a scheme to facilitate Lee’s managerial succession from his ailing father, Lee Kun-hee, by inflating the value of Cheil Industries Inc. and lowering that of Samsung C&T prior to their merger in 2015 to help benefit the heir apparent.

Lee was the largest shareholder in Cheil Industries with a stake of 23.2 percent.

Prosecutors have also been looking into suspected window dressing at Samsung Biologics, a subsidiary of Cheil Industries in 2015.

They suspect the contract drug manufacturer inflated its valuation by approximately 4.5 trillion won (US$3.64 billion) after fraudulently changing the method used to calculate the value of its stake in Samsung Bioepis, a joint venture with U.S.-based Biogen Inc. After the accounting method was changed, Samsung Biologics swung to a profit.

The prosecution is seeking their arrests on charges including unfair trade, stock price manipulation and violation of external audits.

Kim also faces charge of perjury for his statement at court that the merger was initiated by Cheil Industries and had nothing to do with Lee’s succession plan.

Lee was called in by the prosecution twice last week for questioning, and he is said to have denied the charges.

On Tuesday, Lee and Kim asked the prosecution to have outside its experts review the ongoing probe and determine the validity of its potential indictment of them.

Representatives of Lee and the two aides expressed “strong regret” over the prosecution’s filing for arrest warrants just after the request was made.

“The prosecution suddenly requested arrest warrants when the related process has just begun,” they said. “It has neutralized our legitimate right to an objective judgment from the perspective of experts and the public.”

They criticized the prosecution for what they claimed is an “unprecedentedly intense” probe involving more than 50 search and seizure operations and questionings of over 110 people.

Lee was imprisoned for about a year in 2017 for bribing a confidant of former President Park Geun-hye in return for her administration’s support for the 2015 merger.

He was released in early 2018 after his sentence was suspended. But the Supreme Court ordered a retrial last year revising the size of the bribes.

Last month Lee made a rare public apology over the group’s involvement in the scandals.

Lee Jae-yong, vice chairman of Samsung Electronics (Yonhap)

Lee Jae-yong, vice chairman of Samsung Electronics (Yonhap)