Samsung-Linked Convictions Strengthen Case Against Former South Korean President -- Update

By Eun-Young Jeong Features Dow Jones Newswires

A South Korean court convicted two former officials of abuse of power and embezzlement in a case involving the contentious merger of two Samsung affiliates in 2015. Legal experts say the ruling strengthens prosecutors' cases against the country's former president and a top corporate figure.

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The case is at the heart of an influence-peddling scandal that last year sparked massive protests in South Korea over the cozy ties between the country's conglomerates and its political class. The events sparked an investigation that led to the imprisonment of both former President Park Geun-hye and the de facto head of Samsung, the nation's biggest conglomerate.

The court on Thursday sentenced South Korea's former health minister Moon Hyung-pyo to a 2.5-year prison term for ordering the country's National Pension Service to cast the decisive vote in favor of a merger between two Samsung affiliates in which the pension service was a large shareholder.

That deal--which was widely opposed by proxy advisory firms and other shareholders as detrimental to shareholders--strengthened the control of Samsung heir Lee Jae-yong over Samsung Electronics.

The defendant "exercised his influence to violate the independence of the National Pension Service and damaged its shareholder value," the court said, calling that "a matter of grave illegality."

Mr. Moon's conviction is likely to strengthen the case against his former boss, Ms. Park, some legal experts say. Prosecutors say Mr. Moon pressured the pension service to vote for the deal under Ms. Park's order. Ms. Park has denied involvement in the approval of the merger.

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The legal experts say Thursday's ruling is also likely to help the case against Mr. Lee, who prosecutors accuse of funding a consulting company linked to a Park friend in return for government backing for the merger. Mr. Lee, whose trial is expected to end in upcoming weeks, has denied wrongdoing. He has been imprisoned since February as he awaits a ruling.

"There's no doubt that this case is linked to Ms. Park's case," said Byun Jong-pil, a law professor at Dongguk University in Seoul. He said the court's assessment of Mr. Moon's charges will likely weigh in on the continuing trials of both Ms. Park and Mr. Lee.

The court also sentenced Hong Wan-sun, the pension service's former head of asset management, to 2.5 years in jail for approving the merger between the two Samsung affiliates.

Mr. Moon, no relation to South Korea's new president, Moon Jae-in, was arrested by prosecutors in December and indicted the following month on charges of perjury and abuse of authority. He was the first to be detained by a special prosecutorial team looking into the national scandal.

In March, Ms. Park was removed from office over accusations that she helped a friend win bribes from Samsung and other South Korean conglomerates. Ms. Park has been indicted with 18 charges centering around bribery and has been in jail while on trial.

South Korea's family-run conglomerates, known as chaebols, helped pull the nation out of poverty but many South Koreans now see their dominance as an obstacle to a more competitive economy.

Riding that wave of frustration, South Koreans elected President Moon, their first left-leaning president in nine years. He has pledged to improve chaebols' corporate governance by giving more clout to minority shareholders and moving to clearer holding-company structures.

Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com

SEOUL -- A South Korean court convicted two former officials of abuse of power and embezzlement in a case involving the contentious merger of two Samsung affiliates in 2015. Legal experts say the ruling strengthens prosecutors' cases against the country's former president and a top corporate figure.

The case is at the heart of an influence-peddling scandal that last year sparked massive protests in South Korea over the cozy ties between the country's conglomerates and its political class. The events sparked an investigation that led to the indictment of both former President Park Geun-hye and the de facto head of Samsung, the nation's biggest conglomerate.

The court on Thursday sentenced South Korea's former health minister Moon Hyung-pyo to a 2.5-year prison term for ordering the country's National Pension Service to cast the decisive vote in favor of a merger between two Samsung affiliates in which the pension service was a large shareholder.

That deal -- which was widely opposed by proxy advisory firms and other shareholders as detrimental to shareholders -- strengthened the control of Samsung heir Lee Jae-yong over Samsung Electronics.

The defendant "exercised his influence to violate the independence of the National Pension Service and damaged its shareholder value," the court said, calling that "a matter of grave illegality."

Mr. Moon's conviction is likely to strengthen the case against his former boss, Ms. Park, some legal experts say. Prosecutors say Ms. Park had ordered Mr. Moon to ensure that the pension service voted for the deal. Ms. Park has denied involvement in the approval of the merger.

The legal experts say Thursday's ruling is also likely to help the case against Mr. Lee, who prosecutors accuse of funding a consulting company linked to a Park friend in return for government backing for the merger. Mr. Lee, whose trial is expected to end in upcoming weeks, has denied wrongdoing. He has been imprisoned since February as he awaits a ruling.

"There's no doubt that this case is linked to Ms. Park's case," said Byun Jong-pil, a law professor at Dongguk University in Seoul. He said the court's assessment of Mr. Moon's charges will likely weigh in on the continuing trials of both Ms. Park and Mr. Lee.

Neither Mr. Moon nor Mr. Hong's lawyers responded to requests for comment. Messrs. Moon and Hong can appeal the verdict to a higher court.

The court also sentenced Hong Wan-sun, the pension service's former head of asset management, to 2.5 years in jail for approving the merger between the two Samsung affiliates.

Mr. Moon, no relation to South Korea's new president, Moon Jae-in, was arrested by prosecutors in December and indicted the following month on charges of perjury and abuse of authority. He was the first to be detained by a special prosecutorial team looking into the national scandal.

In March, Ms. Park was removed from office over accusations that she helped a friend win bribes from Samsung and other South Korean conglomerates. Ms. Park has been indicted with 18 charges centering around bribery and has been in jail while on trial.

South Korea's family-run conglomerates, known as chaebols, helped pull the nation out of poverty but many South Koreans now see their dominance as an obstacle to a more competitive economy.

Riding that wave of frustration, South Koreans elected President Moon, their first left-leaning president in nine years. He has pledged to improve chaebols' corporate governance by giving more clout to minority shareholders and moving to clearer holding-company structures.

Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com

(END) Dow Jones Newswires

June 08, 2017 09:00 ET (13:00 GMT)