hankyoreh

Samsung Electronics Vice Chairman Lee Jae-yong leaves the Seoul Central District Court after being questioned on suspicions of illegal management succession in June.

South Korean prosecutors who are investigating charges of illegal behavior in the handover of management rights at the Samsung Group recently called in business management and accounting experts to hear their opinions about the case, the Hankyoreh has discovered. Rather than immediately accepting the investigation review board’s recommendation, made on June 26, to halt the investigation and not indict Samsung Electronics Vice Chairman Lee Jae-yong, the prosecutors apparently intend to draw their conclusion after consulting experts.

Hankyoreh reporters learned on Aug. 4 that a division for investigating economic crimes, under senior prosecutor Lee Bok-hyeon, at the Seoul Central District Prosecutors’ Office has been bringing in management and accounting experts over the past several weeks to solicit their advice.

The experts who have spoken with the prosecutors reportedly include not only accountants who are critical of Samsung’s governance structure but also members of the supervisory board at the Financial Services Commission (FSC) who reviewed whether Samsung Biologics had engaged in accounting fraud and a large number of management and accounting professors who have not publicly voiced their opinions about the issue of management succession at Samsung.

“All experts on corporate governance appear to have visited [the prosecutors],” said one of the professors who’d paid a visit.

Generally speaking, the prosecutors have reportedly asked experts for their opinion about the arguments Samsung has made in Lee’s defense and evidence that contradicts those arguments. The evidence in the prosecutors’ hands is said to include emails that accountants at Deloitte Anjin exchanged with Samsung while they were drafting a report in 2015 assessing the planned merger of Cheil Industries and Samsung C&T, including the merger ratio. These emails reportedly show the accountants struggling to reach the conclusion requested by Samsung — namely, that 1 to 0.35 would be an appropriate merger ratio.

“The emails express the opinion of risk-averse accountants who wanted to cancel the report because it was impossible to reach the desired merger ratio,” said another professor who’d been called in by the prosecutors.

But the Deloitte Anjin accountants ultimately puffed up the value of Cheil Industries and degraded the value of Samsung C&T to produce a report that served as decisive grounds for Korea’s National Pension Service and other stockholders agreeing to the merger.

Most of the experts who reviewed Samsung’s arguments and the contradictory evidence had trouble understanding why the review board recommended that the prosecutors stop their investigation and not indict Lee.

“It’s clear from the materials in the prosecutors’ possession that the purpose of the Samsung C&T-Cheil Industries merger was Lee Jae-yong’s inheritance of management rights at the group. But the review board members apparently didn’t find anything wrong with the idea of a merger being arranged to pass down management rights instead of being motivated by business concerns,” said a professor who specializes in business management, adding that the prosecutors “have enough documents to make an indictment inevitable, given the damage inflicted on the capital market.”

“After reviewing the documents provided by the prosecutors, I conveyed my opinion that there was a problem with Samsung Biologics’ accounting — it had exceeded the discretionary authority granted by the International Financial Reporting Standards,” said another professor who specializes in accounting.

“The prosecutors were taking a serious look at the arguments advanced by Samsung from various angles. They seemed determined to not just make a perfunctory indictment, but to make one that most experts would find convincing,” an accountant said.

By Lim Jae-woo, staff reporter

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