Samsung chairman found not guilty in controversial merger case

SEOUL - Samsung Electronics chairman Lee Jae-yong was found not guilty of accounting fraud and stock manipulation by a Seoul appeals court on Feb 3, in a ruling that could remove long-running legal risks that he has faced from criminal cases.

The Seoul High Court upheld the lower court’s ruling dismissing all the charges from a case involving a 2015 merger that prosecutors said was designed to cement his control of the tech giant.

The legal battles have been a distraction for Mr Lee, who faces growing questions about his ability to lead Samsung Electronics, the world’s top memory chip and smartphone maker, which is grappling with growing competition and lacklustre stock prices.

“It took a long time. We hope with the latest ruling, the defendants would be able to focus on their work,” his lawyer Kim You-jin said after the ruling.

For nearly a decade, Mr Lee has faced legal challenges, including those from the merger that led to his succession after his father Lee Kun-hee had a heart attack in 2014 that left him in a coma.

A lower court in 2024 cleared Mr Lee of all charges including stock price manipulation and accounting fraud related to a 2015 US$8 billion (S$10.95 billion) merger between two Samsung affiliates – Samsung C&T and Cheil Industries.

Prosecutors later appealed to the Seoul High Court, seeking a five-year jail term this time, citing a separate ruling in August that said Samsung BioLogics, an affiliate of Cheil Industries, had breached accounting standards by overstating its assets to justify the merger.

The judge said even as the BioLogics accounting practices involved “inappropriate acts” such as the manipulation of documents, the outcomes reflected financial realities and were based on rational reasons and processes.

The court dismissed prosecutors’ claims that the merger caused financial losses to Samsung C&T shareholders.

Mr Lee did not answer questions from reporters when he was leaving the court on Feb 3.

He has denied wrongdoing, saying in court in November: “I never intended to deceive or damage investors for personal gain.”

It was not immediately clear whether the prosecution would appeal against the decision to the Supreme Court.

Samsung shares closed down 2.7 per cent following the ruling.

Leniency

A civic group condemned the court’s decision, arguing that it showed leniency to Mr Lee, who was charged with tightening his grip over his company at the expense of the country’s pension fund and other investors.

The People’s Solidarity for Participatory Democracy said the court disregarded other court rulings related to the merger case.

Until 2021, Mr Lee had served a combined 18 months in jail for bribery charges in a scandal that led to massive protests and ultimately brought down then President Park Geun-hye in 2017.

In 2022, South Korea’s now impeached President Yoon Suk Yeol pardoned Mr Lee, with the Justice Ministry saying the business leader was needed to help overcome a “national economic crisis”.

The controversial merger sparked backlash from investors such as US hedge fund Elliott and raised questions about the corporate governance of South Korea’s family-owned conglomerates, which are often criticised for putting the interest of family members ahead of other shareholders.

In 2023, the South Korean government was ordered to pay around US$108.5 million (S$148 million) to Elliott, which sued it over the role played by the country’s pension fund in approving the merger.

In 2024, the National Pension Service, formerly the biggest shareholder in Samsung C&T, filed a lawsuit against Mr Lee, seeking damages from the merger that allegedly undervalued the key unit.

Meanwhile, the conglomerate’s crown jewel Samsung Electronics warned on Jan 31 of sluggish sales of its artificial intelligence (AI) chips in the current quarter.

Samsung Electronics has lost out to its smaller competitor SK Hynix in supplying high-bandwidth memory chips to Nvidia’s AI graphics processing units and is missing much of the profits generated by the current boom in AI. REUTERS