SEOUL -- Samsung Electronics Vice Chairman Lee Jae-yong was indicted on Tuesday on charges of stock market manipulation and breach of trust that allegedly took place five years ago. The charges cast a cloud over the leadership of the world's largest smartphone maker as it attempts to navigate geopolitical tensions and a pandemic.
The prosecution said the 52-year-old heir to the Samsung business empire was involved in manipulating stock prices of Samsung C&T and Cheil Industries when the two companies merged in 2015.
"[Lee] tried to secure his succession with the minimum cost, strengthening his control," said Lee Bok-hyun, a senior prosecutor at the Seoul Central Prosecutors' Office. "We decided to indict him considering the significance of his crime in disturbing the capital market."
The prosecutor also said that Lee approved accounting fraud at Samsung Biologics, a drugmaking subsidiary of Samsung C&T, as part of a plan to strengthen his grip on the conglomerate. Lee is the largest shareholder in Samsung C&T, the de facto holding company of the Samsung group, with a 17.33% stake.
The prosecution did not, however, seek an arrest warrant for Lee this time, which means he will be able to face trial without detention. His trial date will be set by the court later. The court rejected the prosecution's previous request to arrest him in June.
Lee's attorneys condemned the decision to indict as "unfair" and denied any wrongdoing on the part of Lee or the companies.
"The Samsung C&T merger was a legitimate management action for the purposes of complying with the government's regulations, stabilizing management and creating synergy effects in the businesses. It was confirmed that all the processes in the merger were done legally," they said in a statement. "We cannot help but believe that the prosecution intended to indict the Samsung group and Lee Jae-yong rather than seeking to find out the truth based on evidence."
Lee will "prepare for the trial diligently, proving why the prosecution's indictment was unfair in the courtroom, step by step," they added.
Samsung declined to comment.
The indictment is not the only legal dispute Lee is embroiled in. In 2017 he was imprisoned for bribing former South Korean President Park Geun-hye, but was released on appeal in February 2018 with a reduced and suspended sentence. Now, the court is attempting to have his sentence reassessed as the Supreme Court overturned the ruling last year. The case is pending at the Seoul High Court, and if the decision goes against Lee, he could find himself behind bars again.
In this latest case, the prosecution spent almost two years investigating after the Securities and Futures Commission first said it suspected accounting fraud had taken place at Samsung Biologics. The prosecution widened its investigation into the succession process of Samsung group last year, saying there were suspicions that the group's management had inflated the value of Samsung Biologics to help Lee strengthen his control of the conglomerate.
Lee and Samsung have denied the allegations, saying no any illegal practices were committed during the merger and Samsung Biologics followed international accounting rules.
The indictment comes as Samsung attempts to steer its way through both the coronavirus pandemic and escalating U.S.-China trade tensions. With Washington cracking down on Huawei Technologies, its key rival in the smartphone and telecommunication network businesses, Samsung could have a chance to grab market share. China, however, remains an important market and production base for the South Korean company, making it important to maintain good relations with Beijing.
So far the pandemic has fueled demand for Samsung's chips, as remote working has taken off around the world. Demand for smartphones, however, has been so weak that Huawei surpassed it in shipments in the second quarter.
The beleaguered Lee has tried to draw a line under the numerous controversies at Samsung. In May he said that he would not let his children inherit the company, vowing not to cause any controversies with the succession process anymore. He has also been putting a more public face on his leadership, including a visit to Samsung factories in China and appearing at various events at home.