Secret Ballot Broke Deadlock in Vote on Samsung Heir’s Fate

(Bloomberg) -- Cooped up within a large conference room on the 15th floor of government offices in downtown Seoul, 13 South Korean citizens sparred for nine hours over the country’s most contentious issue: the legal fate of Samsung heir apparent Jay Y. Lee.

The all-male group -- including professors, school teachers and two Buddhist monks -- gathered Friday after Lee invoked a rarely used option to have a civilian panel review legal cases. They heard arguments for and against indicting the billionaire on allegations of financial fraud. They then debated among themselves for another two hours before deciding to try a secret ballot to break the impasse. The outcome -- 10 against an indictment and just three for -- stunned panel members themselves.

“We were all quite surprised,” one of the members told Bloomberg News, asking not to be named since he wasn’t authorized to talk about their discussions. “We had a heated debate but not every member exposed their thinking. It was really hard to tell.”

The decision, while not legally binding, hands an important victory to Samsung and its de facto leader, who gambled on the little-known system to undercut the government’s case and showcase support for Korea’s largest corporation. The recommendation provoked an immediate backlash from corporate governance activists and lawmakers, who urged prosecutors to seek Lee’s indictment anyway. But if they decide to ignore the panel, officials risk angering a populace that regards Samsung -- the world’s largest maker of smartphones, memory chips and appliances -- as critical to reviving the country’s economy after the coronavirus outbreak.

Lee’s attorneys said they are “thankful” for the panel’s involvement and “respect the decision.” Representatives for the prosecutors’ office declined to comment when contacted for this story.

On Wednesday, civil organizations from both sides of the debate held separate press conferences in Seoul to comment on the panel’s conclusion. Samsung Electronics Co. shares fell 0.4% on the day, while Samsung Biologics, one of the companies implicated in the allegations against Lee, was down 3%.

Read more: Samsung’s Billionaire Heir Scores Public Win in Graft Probe

Before Lee’s request, few outside of legal circles had even heard of the civil panel option, which was created in 2018. Now it’s influencing a case that’s spurred nationwide controversy, pitting the country’s most powerful chaebols, or conglomerates, against government agencies that have pledged to diminish their influence and cozy ties to the president’s administration and his Blue House.

In most legal systems of the developed world, public prosecutors decide which cases to pursue, with judges or juries acting as a check by determining the ultimate verdict. South Korea started the unusual civilian panel option as part of reforms under the Moon Jae-in administration. It’s similar to the grand jury system except panel members are chosen -- at random -- by the supreme prosecutors’ office from an existing pool of several hundred pre-vetted names. Friday’s panel thus served as a barometer for how the public views the Samsung heir as well as the chief prosecutor, who is appointed by the president.

Their meeting started at 10:30 am. Prosecutors gave a presentation for about 75 minutes, then a Q&A session for another 90. Following a half-hour boxed lunch, Lee’s lawyers took their turn. During the discussions, the panelists pored over 50 pages of densely worded legal statements, plus a lengthy filing from a liberal civil organization that explained the allegations against Lee, which included stock and accounting manipulation. There followed a final, two-hour-long. freewheeling debate, during which the 13 openly expressed their views, one of them said. At one point, a reporter texted one of the members -- whose identities had been kept under wraps -- causing a bit of a stir.

A second panelist said he expected a close vote considering the polarized public opinion. A third member said he was disheartened about the subsequent controversy over the decision, given they tried their best to be impartial. But he acknowledged one or two members raised the question of the economic impact of Samsung’s legal crisis. “This is an ideological war surrounding a chaebol company behind the scenes,” one of the panelists said.

Why Samsung’s Billionaire Scion Is Facing Jail Again: QuickTake

South Korea’s special prosecutors first indicted Lee in early 2017 on charges of bribery and corruption, kicking off a years-long dispute that led to the impeachment of former President Park Geun-hye. Prosecutors accused Samsung of providing horses and other payments to a confidante of Park’s, to win support for his succession. Lee was found guilty, but then freed after about a year after the court suspended his sentence -- a controversial decision that the Supreme Court has since reversed, raising the prospect of a retrial. The case discussed Friday was related and centers on whether Lee and Samsung used illegal means to help him take control of the conglomerate founded by his grandfather.

While one of the panelists broached the bigger political and economic ramifications, they got bogged down in highly technical details. Members said the biggest hitch in deliberations was how to interpret Article 178 - the prohibition of unfair trading - of the Financial Investment Services and Capital Markets Act, and whether Lee violated the clause. Prosecutors suspect Samsung Biologics Co. intentionally violated accounting rules to justify a more favorable merger ratio between Biologics’ major owner, Cheil Industries, and Samsung C&T. That in turn helped bolster the value of the heir’s stake in Cheil and his influence at Samsung Group. Prosecutors also allege that Lee was involved in stock price manipulations during the 2015 merger, which Samsung and Lee’s attorneys have denied.The panel was divided on whether Samsung complied with financial law during the deal, and on whether Samsung had a clear motive to execute the merger for Lee. One of the members said some were of the opinion that prosecutors had so far failed to produce a “smoking gun,” a strong persuasive argument that crimes were committed. But another member who said he voted against Lee said there were ample documents to support a case against the executive, including records of phone calls and emails that appeared to show Lee was aware of the alleged scheme. He didn’t elaborate, citing legal confidentiality.

The ball is now in the prosecutors’ court, another of the members said. Prosecutors have mostly abided by previous recommendations, but no panel has ever reviewed such a high-stakes case. Officials have invested years into their investigation and may seek to make an example of Lee. If they decide to proceed, an indictment may tie up Samsung’s chief in trials for another three years.

“Apart from Lee’s personal responsibility, I believe this should be a chance to uphold financial market law and order,” one of the members said. “Our society has to become transparent and fair for our future generations.”

(Updates with share prices and Wednesday developments in sixth paragraph)

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