[Editorial] Litigation risk

Samsung Electronics Vice Chairman Lee Jae-yong has been indicted for his role in controversial merger and accounting fraud allegations.

Ten other former and incumbent Samsung executives were also indicted on similar charges.

Lee’s charges are stock manipulation, violations of capital market laws and external audits as well as breach of trust, in relation to the 2015 merger between the Samsung affiliates Cheil Industries and Samsung C&T, and alleged accounting fraud at the pharmaceutical unit of Samsung Biologics. Breach of trust is a new charge that has been added this time.

The Seoul Central District Prosecutors’ Office reversed the recommendation by an expert panel created by the Supreme Prosecutors’ Office.

In June, a panel of 13 outside experts advised overwhelmingly (10-3) against prosecutors’ further investigation into and indictment of Lee. This recommendation indicated that letting him alone to work for the good of the Korean economy was common sense.

Launched in 2018 as a self-reform measure to check prosecutors‘ excessive indictments, the panel has reviewed 10 cases so far. Prosecutors must not necessarily accept its recommendations, but have accepted them on eight cases. The two cases on which they ignored its advice were the attempted coercion by a former reporter of a cable news channel and this one involving Lee.

The prosecution summoned 110 executives in 19 months on 430 occasions and raided Samsung more than 50 times. Lee has been pestered by arrests, investigations and trials for four years, since 2016.

If someone is suspected of committing irregularities, he or she deserves investigation. But a continuous investigation of a specific person or a specific business gives the impression of an intentional investigation and prosecutors abusing their rights.

Now that Lee has been charged, the ball is in the court of the judiciary. Lee strongly denies the charges, so a fierce legal fight is expected. No matter what the public sentiment, the truth of this case must be found in the trials. The ruling must be impartial and strictly based on evidence and legal principles. However, the court needs to allow for public concerns about the economy as well.

Regardless of the trial outcome, people cannot but worry about the possibility of Samsung’s growth engine losing steam irrevocably.

With the latest indictment, Samsung will be caught up in trials of five cases. Lee will be tried in two of them -- a bribery case involving a friend of the impeached former President Park Geun-hye and a fraudulent accounting case involving Samsung Biologics.

The first trial of Lee’s alleged bribery to Park‘s confidant ended in a conviction after more than 50 hearings, for which the accumulated time amounted to 478 hours. The second trial did not acknowledge the bribery charge, but the Supreme Court threw out the second-trial ruling. Lee awaits a new sentence.

Samsung executives are said to have spent about a week preparing for each hearing. It usually takes more than five years before a case reaches the Supreme Court after the filing of charges.

How can a business concentrate on management while facing five trials at the same time?

Samsung is already in an emergency mode amid a host of uncertainties partly stemming from the COVID-19 pandemic and the ever-deepening US-China trade conflict.

With the indictment of Lee and others, megaprojects such as semiconductor development costing hundreds of trillions of won are likely to be halted. Considering its brisk collaboration with a wide array of foreign global businesses, the indictment will send a negative message portraying Lee as a businessman who may sacrifice corporate interests for the sake of personal gains.

Alleged fraudulent accounting and merger ratio manipulation is an issue that causes distrust, not only of Samsung but of the Korean financial market.

Samsung Biologics and Samsung C&T are likely to have difficulties in securing funds, taking over businesses, winning orders overseas and recruiting people of ability.

Some experts expect this indictment to prolong Samsung’s litigation risk for 10 years or longer. The trials will shake Samsung, tarnishing its reputation. That is what its competitors will like.