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S Korean court upholds Samsung convictions

Huh Tae-hak, a former head of Everland, a Samsung unit that runs South Korea's largest amusement park, gets into a car to leave the Seoul High Court yesterday. An appeals court upheld the convictions of Huh and Park Ro-bin, two Samsung Group executives, for arranging deals aimed at transferring corporate control of the conglomerate from father to son more than a decade ago. PHOTO: AP

An appeals court yesterday upheld the conviction of two Samsung executives for helping the chairman of South Korea's biggest group transfer control to his son through an illicit bond deal.

The Seoul High Court endorsed guilty verdicts against Huh Tae-hak and Park Ro-bin for selling a controlling stake in the group's holding company to the son of group chairman Lee Kun-hee at a discounted price.

A lower court in 2005 had sentenced Huh and Park, the former and current presidents of the holding firm Samsung Everland, to suspended jail terms of three and two years respectively for breach of duty.

The appeal court confirmed Huh's sentence and increased Park's suspended jail term to three years.

The case focuses on a 1996 transaction at Samsung Everland, which helped Lee Kun-hhee pass control of the family-run group to his only son, Lee Jae-yong.

The younger Lee bought 1.25 million Samsung Everland shares at 7,700 won (US$8.20) per share -- far lower than the market price at the time -- via an issue of convertible bonds.

The appellate court said the accused had sold the bonds to the son at a "remarkably low price" and the stock should have cost 14,825 won per share or more.

It also said a board meeting in October 1996 that approved the bond sale was invalid because not enough directors attended.

"It is clear that the accused have breached their official duty," the court said in a statement, adding it would make no ruling on whether the elder Lee was personally involved in setting the bond price at an excessively low level.

The son's purchase sparked protests from activists including law professors, who filed a complaint with prosecutors against Samsung chairman Lee in 2000.

"The significance of [yesterday's] ruling is that the appeals court has confirmed Lee Jae-yong's succession had been carried out through illicit means," said Kim Young-hee, director of activist group Solidarity for Economic Reform.

She urged the Lees to return the "illicitly acquired gains" to the company and other shareholders.

"The Samsung Group must embark on reforming its corporate governance structure," she said.

A lawyer for the accused said they would appeal to the South Korean Supreme Court.

Even if the Supreme Court upholds the lower courts' findings, Kim said, the 26 percent stake in Everland currently held by Lee Jae-yong cannot be nullified because of the statute of limitations.

But analysts say the case will be an obstacle if Lee Jae-yong, 39, tries to assume formal leadership of the group, whose US$150 billion in annual sales amount to 17 percent of the country's total economic output.

Samsung Everland controls the group through a large web of ownership that includes a 19.3 percent controlling stake in Samsung Life Insurance.

Samsung Life has a 7.3 percent stake in Samsung Electronics, which in turn owns 47 percent of Samsung Card. Samsung Card has a 26 percent stake in Samsung Everland in what is known as a circular chain of ownership.

After the East Asian financial crisis struck in 1997, South Korea launched a drive to reform corporate governance at the conglomerates. Despite relatively small direct holdings, many founding families still maintain a grip over their empires through complicated chains of investment.

Hyundai Motor chairman Chung Mong-koo is currently appealing against convictions and a jail term.
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