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South Korean prosecutors are seeking a five-year jail term for Samsung chair Lee Jae-yong over charges of accounting fraud and stock manipulation connected to the controversial 2015 merger of two of the group’s units.
Prosecutors allege that Lee, who was vice-chair of Samsung Electronics in 2015, was among a group of executives that inflated the stock price of Cheil Industries, a textile company, and devalued Samsung C&T, a construction and engineering business, during the merger to help cement the billionaire scion’s control of the conglomerate.
They claim that Lee’s alleged stock manipulation inflicted losses on shareholders of Samsung C&T. Lee, the grandson of Samsung founder Lee Byung-chul, is also accused of orchestrating a $3.9bn accounting fraud at the group’s biopharmaceutical unit in 2015 as part of the same case.
“The defendants undermined the foundation of the country’s capital markets to smooth the leader’s succession,” the prosecutors said on Friday.
“They abused the authority granted by the company and shareholders for the private interests of the group leader and abused extreme imbalance of information,” they added. Friday’s session was the last hearing before a ruling is expected in the coming months.
Lee has denied any wrongdoing during the three-year trial, claiming the merger and accounting process were part of the group’s normal business activities.
In 2017, the tycoon was convicted of bribing then South Korean president Park Geun-hye in a separate case relating to the same merger. He spent 18 months in jail until he was approved for parole by Park’s left-wing successor Moon Jae-in in 2021.
Yoon Suk Yeol, the prosecutor who oversaw Lee and Park’s convictions, has since been elected as the country’s president. But critics say the Yoon administration has been too lenient to the chaebol, the country’s powerful family-run conglomerates.
Yoon issued Lee with a pardon last year, with his government arguing the tycoon needed to be reinstated as head of the country’s largest company to help “revitalise the economy”.
“Accounting fraud and stock manipulation are serious crimes that shake the foundation of capitalism but they are seeking too light a punishment for Lee,” said Park Sangin, economics professor at Seoul National University.
“Under President Yoon, the government’s chaebol reform and punishment of tycoons accused of white-collar crimes are going backward, which is very worrisome.”
The $8bn merger between Samsung C&T and Cheil exposed the cosy relationship between the conglomerates and the government. The state-run National Pension Service, which held an 11 per cent stake in Samsung C&T, voted in favour of the merger despite strong opposition from US activist hedge fund Elliott Management, which was a minority shareholder of Samsung C&T.
Elliott won an international arbitration ruling this year that ordered South Korea to pay the hedge fund $108mn for damages as a result of the merger and the previous government’s intervention in the deal. South Korea is challenging the arbitration ruling.
Samsung Electronics did not immediately respond to a request for comment.
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