Samsung Electronics head Jay Lee found not guilty of accounting fraud, stock manipulation in merger case

In a major relief for Samsung Electronics, former Chairman Jay Y. Lee was declared not guilty of accounting fraud and stock manipulation by a Seoul court on Monday. The case revolved around a 2015 merger aimed at solidifying Lee’s control over the technology giant.

Contrary to expectations of a suspended sentence, the ruling could grant Lee more flexibility in steering South Korea’s largest conglomerate.

The unexpected verdict could potentially liberate Lee from legal constraints that have hindered Samsung Electronics’ innovative and job creation efforts for nearly a decade, according to Kim Ki-chan, a business professor at the Catholic University of Korea. Lee’s legal troubles had led to a bureaucratic and risk-averse environment within the company.

The charges against Lee and other former executives centred on allegations of orchestrating a merger between two Samsung affiliates, Samsung C&T and Cheil Industries, disregarding the interests of minority shareholders. Before the merger, the Lee family controlled Cheil, but not Samsung C&T, a significant shareholder in Samsung Electronics.

Prosecutors had sought a five-year jail term for Lee, but he denied wrongdoing, asserting that the merger was in the shareholders’ best interest. The panel of three judges at the Seoul Central District Court ruled that the merger decision was made after careful consideration and review by the boards of the two companies, dismissing claims of the sole purpose of strengthening Lee’s management rights.

The acquittal extends to all 14 defendants and prevents Lee from returning to jail. Previously convicted in 2017 for bribing a friend of former President Park Geun-hye, Lee served 18 months of a 30-month sentence before being pardoned in 2022.

If prosecutors choose not to appeal, the ruling would mark the resolution of Lee’s legal issues dating back to 2016. Lee’s lawyer, Kim You-jin, expressed gratitude for the court’s “wise decision.”

While some criticize the ruling as unfair, emphasizing the protection of conglomerate heads, it signals a potential shift for Samsung and Lee, who have played a crucial role in the conglomerate’s trajectory. The Lee family and related entities currently own 20.7 per cent of Samsung Electronics.

In a related case, the Permanent Court of Arbitration in The Hague ordered the South Korean government to pay U.S. hedge fund Elliott $108.5 million for the National Pension Service’s role in approving the $8 billion merger. South Korea’s conglomerates, primarily family-owned, have faced public scrutiny over scandals, but recent efforts by business leaders to engage with the public have led to a more favourable perception. Following the court ruling, shares in Samsung C&T, the group’s de facto holding company, experienced a brief increase before settling mostly flat.