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Samsung heir Lee's trial on fraud charges begins in Seoul

Vice chairman is charged with market manipulation and accounting fraud

Samsung Electronics Vice Chairman Lee Jae-yong is the de facto head of South Korea's largest conglomerate.   © Reuters

SEOUL -- The trial of Samsung Electronics Vice Chairman Lee Jae-yong on charges of accounting fraud and market manipulation began on Thursday in Seoul.

The proceedings began with prosecutors and attorneys meeting in the Seoul Central District Court to discuss the trial schedule and lay out their respective positions on the case. Lee himself did not attend.

The prosecution said last month that 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.

Prosecutors also allege 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.

At Thursday's hearing, attorneys for Lee and other Samsung executives said that the merger of Cheil Industries and Samsung C&T was a normal management activity and no criminal accounting practices took place at Samsung Biologics, according to the press pool report from the hearing.

The defense also asked the court for three months to review the 190,000 pages of documents prepared by prosecutors. The court granted the request, setting up the next hearing to take place on Jan. 14.

Prosecutors, meanwhile, are expected to present their case at the next hearing. They have also asked the court to conduct two hearings a week to speed up the process. The court will decide later on that request.

The trial comes as Samsung attempts to steer its way through both the coronavirus pandemic and escalating U.S.-China trade tensions. Samsung has benefited from Washington's crackdown on Huawei Technologies, its key rival in smartphone and telecom network businesses, but also faces risk, as it is a major supplier of chips to Huawei and other Chinese companies.

Lee visited Vietnam this week to examine the company's smartphone and display production lines. While there, he met with Vietnamese Prime Minister Nguyen Xuan Phuc to discuss investment opportunities.

Lee's attorneys condemned the decision to indict the executive 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," they said in a statement.

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.

According to South Korea's Independent Audit Law, a company executive convicted of accounting fraud can face up to 10 years in prison as well as a fine.

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