A Scandal's Genesis: 'Buy Good Horses' -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 4, 2017).

SEOUL -- In a glass-walled room, South Korea's then-President Park Geun-hye made a request to Lee Jae-yong, Samsung's de facto leader: "Buy good horses."

It was a conversation that would lead to a national scandal, her impeachment and the arrest of them both.

This first private meeting lasted less than five minutes, Mr. Lee confirmed from the witness stand Thursday, after his lawyer presented the first detailed accounts of the three such meetings between Ms. Park and the 49-year-old vice chairman of Samsung Electronics Co., the world's largest smartphone maker.

The occasion was the September 2014 opening ceremony of a startup-support center funded by Samsung in Daegu, about 180 miles south of Seoul, and Ms. Park was seeking backing for another venture: She asked Mr. Lee to have Samsung manage the Korea Equestrian Federation, the country's main governing body for the sport.

At their second meeting 10 months later, Mr. Lee testified, Ms. Park scolded him for Samsung's poor job with the federation and told him to replace company officials involved in it.

What has been dubbed domestically the "trial of the century" centers around some $37 million that Samsung agreed to pay to entities linked to Ms. Park and her confidante, Choi Soon-sil. About half of that was to go to a small sports-consulting company in Germany responsible for training Ms. Choi's equestrienne daughter, who became its sole client.

In exchange for the funds, prosecutors allege, Mr. Lee sought favors from the government to consolidate his control of South Korea's largest conglomerate. Both Ms. Choi and Ms. Park have denied wrongdoing.

The two are the highest-profile figures in the corruption scandal. Mr. Lee has been in custody since his February arrest. Ms. Park was removed from office in March by the country's Constitutional Court, after her impeachment over accusations that she colluded with Ms. Choi to extort money from Samsung and other South Korean conglomerates.

In his testimony, Mr. Lee said he was thrown off by Ms. Park's outrage at their second meeting. He said he passed on her message to his lieutenants at Samsung, who swiftly followed through on Ms. Park's demands and replaced the company employees involved in the equestrian federation.

Mr. Lee denied seeking favors from the government or attempting to increase his control over Samsung by restructuring his stakes across company affiliates. "It makes no sense to measure my control by my number of stakes," he said.

In his two days of testimony, Mr. Lee repeatedly denied the bribery charge, saying he knew nothing of the Samsung payments. He said he hadn't directed the Samsung business maneuvers that prosecutors said were linked to his succession.

Separately Wednesday, the onetime head of Samsung's corporate-strategy office, the group's control tower, Choi Gee-sung -- no relation to Ms. Choi -- testified that the decision to merge two Samsung affiliates in 2015 had been his. That deal consolidated Mr. Lee's grip on Samsung Electronics. The self-described "mentor" to Mr. Lee said he was also the one who decided that Samsung fund Ms. Choi's daughter, Chung Yoo-ra.

"I was responsible for final decision-making at Samsung group," said Mr. Choi who stepped down after Samsung abolished the strategy office in February.

Mr. Choi's testimony aligns with that of Mr. Lee, who said he had called Mr. Choi immediately after his meetings with Ms. Park to seek advice.

Mr. Lee drew a firm line on his involvement in conglomerate-level matters, saying his responsibilities were primarily with Samsung Electronics and its affiliated companies.

While this week's testimony appears to distance Mr. Lee from the corruption scandal, it raises questions about his ability to lead Samsung -- questions Mr. Lee himself admits he needs to settle as the "third generation" successor. Mr. Lee is the grandson of Samsung's founder and has been the conglomerate's de facto leader since his father, Samsung Chairman Lee Kun-hee, was incapacitated by a heart attack in 2014.

"The public has a different expectation for my role compared to that of the company's founder," Mr. Lee said. "I need to be more wise in how I build relationships with the company and other stakeholders. It's not a simple matter of having more stakes."

The court completed questioning defendants Thursday and is expected to hold its final hearing early next week, when prosecutors will recommend a sentence for Mr. Lee.

A verdict is likely before Aug. 27, the last day that Mr. Lee can be held in custody without a conviction under South Korean law.

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

(END) Dow Jones Newswires

August 04, 2017 02:47 ET (06:47 GMT)