The prosecution, which is investigating suspicions surrounding the merger of Samsung C&T and Cheil Industries and the succession of Samsung's management control, requested an arrest warrant for Samsung Electronics Vice Chairman Lee Jae-yong.
The Seoul Central District Prosecutors' Office filed an arrest warrant for Vice Chairman Lee, Choi Ji-sung, former Samsung's Future Strategy Office chief, and Kim Jong-joong, former head of former Samsung's Future Strategy Office’s strategy team.
Vice Chairman Lee and others were charged with violating the Capital Markets Act on illegal transactions, market manipulation and the Act on External Audit of Stock Companies. former President Kim was charged with perjury.
The prosecution believes that the merger between Samsung C&T and Cheil Industries in 2015 was made to help Lee take over the managerial rights of Samsung Group. At the time of the merger, the merger ratio between Cheil Industries and Samsung C&T was "1 vs. 0.35," with one share of Cheil Industries three times higher than that of Samsung C&T.
The vice chairman, who held 23.2 percent of Cheil Industries' shares but had none of Samsung C&T's shares, became the largest shareholder of "integrated Samsung C&T" through the merger of the two companies.
To produce such results, the prosecution charged Lee with violating the Capital Market Act, believing that he tried to justify the merger ratio by inflating the value of Cheil Industries, in which he has a high stake, and by dropping the share price of Samsung C&T.
Prosecutors believe Samsung's alleged accounting fraud is also related to Lee's succession.
Samsung Bio had not reflected the U.S. joint venture Biogen's call option on its subsidiary Samsung Bioepis in its accounting, but changed its accounting standards after holding it in debt of 1.8 trillion won since the merger in 2015, earning 4.5 trillion won in book profits.
The prosecution judged that Samsung Bio unfairly changed its accounting standards for fear that reflecting the call option would put the company in a state of capital erosion and calculate a merger ratio unfavorable to Cheil Industries. Vice Chairman Lee reportedly denied the allegations altogether, saying that he had not been briefed or ordered on the merger during the prosecution's recent investigation.
Since September last year, prosecutors have raided the National Pension Service's fund management headquarters, Samsung C&T, KCC, Samsung Life Insurance and Samsung Asset Management, focusing on proving Lee's charges. They also summoned Lee twice on May 27 and 29 for more than 17 hours of intensive questioning.
Separately, Vice Chairman Lee called for convening a meeting of the Prosecution Investigation Review Committee to determine the validity of the indictment the previous day. The committee is a system in which the body consisting of legal experts reviews and evaluates the investigation process and results of cases that can draw keen attention from society and cause disputes over fairness.
