[News Focus] Court set to decide on Samsung heir Lee’s arrest

A South Korean court will decide Monday whether Samsung Electronics Vice Chairman Lee Jae-yong should be arrested over his possible involvement in a series of alleged corporate frauds surrounding a 2015 merger between two key affiliates.

The high-stakes courtroom battle will take place at the Seoul Central District Court from 10 a.m., which will be attended by Lee and two ex-executives of Samsung Group -- Choi Ji-sung, former future strategy office chief, and Kim Jong-joong, former head the strategy team. The court’s decision is expected to come out later in the day or early next morning.

Last Thursday, the Seoul Central District Prosecutors’ Office filed for arrest warrants for Lee and the two former officials on charges of violating the Financial Investment Services and Capital Markets Act on illegal transactions, market manipulation and the Act on External Audit of Stock Companies.

If the courts rules in favor of the prosecution, the de facto leader of the country’s largest conglomerate will return to prison in two years and four months after release. He was in prison for almost a year on corruption charges.

After digging into the case for over 1 1/2 years, prosecutors suspect Lee and the two former executives intentionally lowered the value of Samsung C&T while inflating that of Cheil Industries ahead of their merger, to help Lee in his managerial succession from his ailing father Lee Kun-hee.

Prosecutors suspect that the group misled shareholders and investors by providing false information to the market to complete the multibillion-dollar merger.

The arrest of the vice chairman will depend on whether the prosecution is able to present substantial reasons to implicate him in the allegations as well as the need for his physical detention.

A key point of contention will be whether Lee directed, or was aware of the alleged wrongdoings surrounding the merger or fraudulent accounting practices of Samsung Biologics through reports by company executives.

Prosecutors and financial market regulators suspect that Samsung Biologics inflated its valuation by approximately 4.5 trillion won in 2015 after fraudulently changing the method used to calculate the value of its stake in Samsung Bioepis, a joint venture with US-based Biogen. Samsung C&T is the largest shareholder of Samsung Biologics with a 43.44 percent stake.

Samsung Group, which has been denying the allegations concerning the heir’s involvement, reiterated legitimacy of the financial procedures on Sunday.

“The merger between Samsung C&T and Cheil Industries was proceeded legally in accordance with relevant laws and procedures. Samsung Biologics’ accounting process was also handled in compliance with international accounting standards,” it said in a statement.

The failure to secure an arrest warrant will pose another setback for the prosecution whose credibility has been hurt when its two requests to detain Samsung Biologics CEO Kim Tae-han fell through last year.

Some consider the prosecutions attempt to arrest Lee is excessive, given a slim chance that he will flee and that the investigation has been going on for nearly 18 months now, with 38 summons of 11 former and current Samsung executives. Lee himself was summoned twice for questioning late May.

In criminal cases, a judge issues a warrant only if a suspect has no fixed dwelling or there are reasonable grounds to believe that a suspect may attempt to escape or destroy evidence.

In a rare action on June 2, Lee requested the prosecution to convene an investigation review committee to let external experts, such as lawyers and law professors, determine the validity of his indictment.



By Park Han-na (hnpark@heraldcorp.com)