How teachers, monks could prove pivotal to Samsung heir's fate

Samsung Group heir Jay Y. Lee arrives for a hearing at the Seoul Central District Court in Seoul, on June 8, 2020. PHOTO: REUTERS

SEOUL (BLOOMBERG) - Cooped up within a large conference room on the 15th floor of government offices in downtown Seoul, 13 South Korean citizens sparred for nine hours over the country's most contentious issue: the legal fate of Samsung heir apparent Jay Y. Lee.

The all-male group - including professors, school teachers and two Buddhist monks - gathered on Friday (June 26) after Lee invoked a rarely used option to have a civilian panel review legal cases. They heard arguments for and against indicting the billionaire on allegations of financial fraud. They then debated among themselves for another two hours before deciding to try a secret ballot to break the impasse. The outcome - 10 against an indictment and just three for - stunned panel members themselves.

"We were all quite surprised," one of the members told Bloomberg News, asking not to be named since he wasn't authorised to talk about their discussions. "We had a heated debate but not every member exposed their thinking. It was really hard to tell."

The decision, while not legally binding, hands an important victory to Samsung and its de facto leader, who gambled on the little-known system to undercut the government's case and showcase support for South Korea's largest corporation. The recommendation provoked an immediate backlash from corporate governance activists and lawmakers, who urged prosecutors to seek Lee's indictment anyway. But if they decide to ignore the panel, officials risk angering a populace that regards Samsung - the world's largest maker of smartphones, memory chips, and appliances - as critical to reviving the country's economy after the coronavirus outbreak.

Lee's attorneys said they are "thankful" for the panel's involvement and "respect the decision." Representatives for the prosecutors' office declined to comment when contacted for this story.

Before Lee's request, few outside of legal circles had even heard of the civil panel option, which was created in 2018. Now, it's influencing a case that's spurred nationwide controversy, pitting the country's most powerful chaebols, or conglomerates, against government agencies that have pledged to diminish their influence and cozy ties to the president's administration and his Blue House.

In most legal systems of the developed world, public prosecutors decide which cases to pursue, with judges or juries acting as a check by determining the ultimate verdict. South Korea started the unusual civilian panel option as part of reforms under the Moon Jae-in administration. It's similar to the grand jury system except panel members are chosen - at random - by the supreme prosecutors' office from an existing pool of several hundred previously vetted names. Friday's panel thus served as a barometer for how the public views the Samsung heir as well as the chief prosecutor, who is appointed by the president.

South Korea's special prosecutors first indicted Lee in early 2017 on charges of bribery and corruption, kicking off a years-long dispute that led to the impeachment of former president Park Geun-hye. Prosecutors accused Samsung of providing horses and other payments to a confidante of Park's, to win support for his succession. Lee was found guilty, but then freed after about a year after the court suspended his sentence - a controversial decision that the Supreme Court has since reversed, raising the prospect of a retrial. The case discussed Friday was related and centers on whether Lee and Samsung used illegal means to help him take control of the conglomerate founded by his grandfather.

While one of the panelists broached the bigger political and economic ramifications, they got bogged down in highly technical details. Members said the biggest hitch in deliberations was how to interpret Article 178 - the prohibition of unfair trading - of the Financial Investment Services and Capital Markets Act, and whether Lee violated the clause. Prosecutors suspect Samsung Biologics intentionally violated accounting rules to justify a more favorable merger ratio between Biologics' major owner, Cheil Industries, and Samsung C&T. That in turn helped bolster the value of the heir's stake in Cheil and his influence at Samsung Group.

Prosecutors also allege that Lee was involved in stock price manipulations during the 2015 merger, which Samsung and Lee's attorneys have denied. The panel was divided on whether Samsung complied with financial law during the deal, and on whether Samsung had a clear motive to execute the merger for Lee. One of the members said some were of the opinion that prosecutors had so far failed to produce a "smoking gun," a strong persuasive argument that crimes were committed. But another member who said he voted against Lee said there were ample documents to support a case against the executive, including records of phone calls and emails that appeared to show Lee was aware of the alleged scheme.

The ball is now in prosecutors' court, another of the members said. Prosecutors have mostly abided by previous recommendations, but no panel has ever reviewed such a high-stakes case. Officials may decide that they've invested years in their investigation and seek to make an example of Lee. If they decide to proceed, an indictment may tie up Samsung's chief in trials for another three years.

"Apart from Lee's personal responsibility, I believe this should be a chance to uphold financial market law and order," one of the members said. "Our society has to become transparent and fair for our future generations."

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