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Samsung heir's arrest warrant hearing begins in Seoul

Investigators allege Lee Jae-Yong manipulated company valuations in 2015

Samsung Group heir Lee Jae-yong arrives for a court hearing to review a detention warrant request against him at the Seoul Central District Court on June 8.   © Reuters

SEOUL -- Samsung Electronics Vice Chairman Lee Jae-yong arrived in court on Monday morning for a hearing to determine whether the scion of South Korea's largest company will find himself behind bars again.

Prosecutors are seeking a warrant for Lee's arrest in relation to alleged "market manipulation" in 2015 involving the merger of two Samsung group companies.

If the warrant is granted, Lee will be immediately detained.

The hearing comes at a delicate time for Samsung, which is navigating both the coronavirus pandemic and growing tensions between the U.S. and China. It is also not the only legal trouble currently facing the 51-year-old Lee. Investigators are looking into alleged accounting fraud at another group company, Samsung Biologics, that they claim was carried out to smooth Lee's succession as head of the company.

In seeking this arrest warrant, investigators allege Lee and two former executives of Samsung Electronics inflated the corporate value of Cheil Industries and Samsung C&T, which merged five years ago.

Lee was a major shareholder of Cheil with a 23.2% stake at the time, while C&T had a key stake in Samsung Electronics. The merger allowed Lee to strengthen his grip over Samsung Electronics, the crown jewel of the group.

Lee, who has run South Korea's most powerful company since his father was hospitalized in 2014, has recently tried to draw a line under controversies at Samsung. In May, he announced that his children will not inherit control of the world's largest smartphone maker and vowed not to "cause controversies over succession 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.

Lee was imprisoned in 2017 for bribing ousted South Korean President Park Geun-hye. After appealing his conviction, he was released in February 2018 with a reduced and suspended sentence.

The current hearing comes as Samsung faces a further test from the coronavirus pandemic.

While the company managed to navigate the first quarter in relatively good shape, analysts say it will face more serious problems in the second quarter, as demand for smartphones and other devices is dwindling quickly.

Samsung must also steer its way carefully through 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. For instance, the U.K. government is reportedly in talks with Samsung to replace Huawei in its 5G network establishment. At the same time, China remains an important market and production base for the South Korean company, making it important to maintain good relations with Beijing.

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