Can Lee Jae Rong, the leader of Samsung, be sued again? Can the chaebol system in South Korea be shaken?

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 Can Lee Jae Rong, the leader of Samsung, be sued again? Can the chaebol system in South Korea be shaken?


According to South Korean media reports, on September 1 local time, the Central District Prosecutors office in Seoul, South Korea (hereinafter referred to as the Seoul local prosecutor) formally sued Lee Jae Rong, vice president of Samsung Electronics and head of SamSung group, accusing him of manipulating shares, violating the capital market law and external audit, and violating trust. He was also accused of violating the capital market law, external audit and trust During the IPO period, accounting fraud has created a favorable environment for Li zaireng to succeed SamSung group.

This is also after three and a half years since February 2017, when he was indicted for illegal bribery during the boudoir interference scandal of former South Korean President Park Geun hye.

In addition to Mr. Li himself, 10 former and in-service executives of Samsung have also been charged with similar charges.

According to the information obtained by the first finance reporter from the Seoul geological inspection, the prosecution said in the indictment that Li zaireng was involved in the merger process of Samsung products and first wool weaving Co., Ltd. of SamSung group in 2015, at the expense of accounting fraud to cause asset devaluation, thus creating a favorable environment for Li zairengs succession and damaging the legitimate interests of investors.

Among them, the key content of the prosecutions accusation is that, in order to successfully complete the merger, Li Zairong was accused of deliberately raising the share value of Samsung bio Epis, a subsidiary of Samsung bio, before the IPO of Samsung bio reached US $2 billion in 2016. According to the holding data of SamSung group in 2016, first wool holds 46% shares of Samsung biology.

Therefore, the prosecution claimed that in order to successfully complete the merger of Samsung products and first wool fabric, Li Zairongs asset valuation was improved by raising the valuation of Samsung biology, and helped the merger of two core companies of SamSung group. The suspected fraudulent accounting amount was about 4.5 trillion won.

In response to the above accusations, first finance reporter contacted Samsung Electronics, and the other party only said in a statement that it would fully respond to the lawsuit in order to safeguard its legal rights. However, a senior executive of Samsung Electronics told the first finance and economics reporter on the premise of his personal opinion that in the context of the recurrence of the epidemic situation, the continuous trade disputes between South Korea and Japan, and the unstable economic and trade situation, the prosecution should make a comprehensive response We are shocked and very sorry that we have made such a decision.

Professor Li Guoxian of the school of political science and economics of Korea Korea Korea University told the first finance and economics reporter that the reasons for the prosecution in this indictment are basically the same as those in February 2017. The focus of the prosecution is all related to the successful completion of Lee Jae Rongs succession work. At that time, the main focus was on illegal bribery, and this time the focus was on illegal bribery To accounting violations.

In 2016, in the scandal of boudoir interference by former South Korean President Park Geun hye, the special inspection team proposed that Li Zairong donated to the consortium controlled by Cui shunshi in order to obtain convenience in the process of inheriting Samsung. He was sentenced to fixed-term imprisonment in the first instance, but was released on probation in the second trial.

Since then, the special monitoring group of the Supreme Procuratorate of South Korea, which investigated the case of Li Zairong, appealed to the Supreme Court (Grand Court) of South Korea and is now waiting for the decision of the Supreme Court.

In this context, in January this year, the Samsung compliance supervision committee, composed of former justices, legal experts and scholars, was formally established, and requested the independent body of the Supreme Peoples Procuratorate, the investigation and review committee, an independent body under the Supreme Peoples Procuratorate, to consider whether Li zairengs case should be prosecuted.

Li Guoxian believes that the reason why the prosecution has been grasping the merger of Samsung products and first wool fabrics is mainly due to the special position of Samsung products in the Samsung holding system.

According to the control structure chart released by Samsung Electronics at the end of 2018, Samsung products owns 19.47% of the shares of Samsung Life Insurance, the former holds the position of major shareholder for the latter; and Samsung Life Insurance holds 8.51% of the shares of Samsung Electronics, second only to 11% of the shares held by Korean National Pension Fund (national pension), ranking the second largest shareholder; if Li Jianxi and Li Zai are included, they are listed as the second largest shareholder The Samsung family holds 21% of the shares of Samsung Electronics.

The reason why Samsung Electronics wants to take such a complicated form of shareholding is mainly due to the South Korean Chaebols adoption of the mode of circulating capital contribution , that is, one holding one company, and the other subsidiaries are controlled by enterprises at the top of the chain of control. This mode is conducive to reducing the holding cost of the leaders families, but it also has the characteristics that the holding structure is easily shaken by capital. Li Guoxian said that in the holding structure of Samsung, Samsung products is the peak of the holding structure of SamSung group, and the major shareholder of Samsung products is Li Jianxi. Therefore, the prosecution will suspect that Li zaireng completed the merger under more favorable conditions by increasing the valuation of the first wool company he controls.

Park Chang Wen, a Korean lawyer who mainly studies the enterprise law, analyzed to the first finance and economics reporter that among the accusations involving Li Zairong, the most core and the highest penalty involved is whether illegal measures were taken to successfully complete the succession, which is closely related to the inheritance tax of 40-50% charged in South Korea.

However, a South Korean insider close to Samsung Electronics told the first finance and economics reporter that since the outbreak of the case in 2017, the prosecution has been constantly summoned and investigated. Samsungs subsidiaries and department offices have been searched for more than 50 times, involving nearly 110 former or current employees of Samsung, which not only aroused the dissatisfaction of targeting specific enterprises within Samsung And it is unique in the judicial history of South Korea.

On June 6, Lee Jae Rong, vice president of Samsung Electronics and the actual controller of the group, held a press conference. He said that many external disputes about Samsung stem from succession issues. From now on, he has invested all his energy in improving the value of the company and promised that there would be no dispute over the successor issue. I will make it clear that I have no plan to transfer the management right of the company to my son Women inherit. In the subsequent investigation and review committee, 10 of the 13 members suggested that the Korean prosecutor, Li Zairong, should not be prosecuted..

The people familiar with the matter mentioned above mentioned that even in cases involving chaebol executives, the South Korean prosecutors delayed for nearly two years, and the investigation and review committee of the Supreme Peoples Procuratorate of South Korea also gave the opinion of stopping the investigation. Although this opinion is not mandatory, it is rare for the Seoul prosecutors to ignore the recommendations.

It is worth noting that compared with the previous accusations that Li zaireng was in prison, the prosecutions indictment did not require the arrest of Li zaireng. The above-mentioned people also believe that since Li zaireng has not been arrested, the impact on Li zaireng and Samsung as a whole is small in the short term. However, due to the fact that similar lawsuits may last for five years or even longer, Samsung Electronics is currently on the chip As a result, the continuation of the trial will not rule out the advantage of South Koreas chaebols rapid decision-making.

Li Guoxian believes that during the boudoir politics scandal, slogans such as liquidation of chaebols and trial of Samsung appeared many times during the march against Park Geun hye, which reflected the dissatisfaction of the South Korean people with the current chaebol system. Therefore, in the years after Lis inauguration, compared with previous Samsung, Lis investment in social participation and image has become more specific In addition, they began to pay more attention to the image of enterprises in the society, which is also the attempt of the chaebol in South Korea to gradually step out of the self rescue by the negative image of collusion between government and business.

Li zaireng, the leader of Samsung, was sued by the prosecution. Source: Qiao JunJing, editor in charge of first finance and Economics_ NBJ11279

Samsung leader Li zaireng is prosecuted