Samsung’s de-facto chief Jay Y. Lee was sentenced to a five-year jail term by a court in South Korea on Friday. He was accused of paying bribes to gain government favors for the conglomerate
In order to get support from ousted President Park Geun-hye, the court found Samsung Electronics vice chairman Lee guilty of giving bribes, local news agency, Yonhap, said .
One of Lee’s lawyers told reporters that they were confident the ruling would be overturned and Lee is reportedly expected to appeal the decision.
Recovering slightly from an earlier drop of more than 2 percent, Samsung C&T shares closed down 1.48 percent in the afternoon session.
Taken into custody and held by authorities since February was Lee, the 49-year-old scion of the family behind South Korea’s largest chaebol. Chaebols have historically played an important role in the country’s economic development have historically played an important role in the country’s economic development and are South Korea’s large, family-run conglomerates.
In order to gain government favors for Samsung, Lee is accused of bribing a close friend of former President Park, by the special prosecutor’s office.
A government approval in 2015 of the merger between Samsung C&T and Cheil Industries was included in it. Samsung C&T shareholder Elliott Associates said the deal greatly undervalued the company and overvalued Cheil Industries and had opposed the merger.
Particularly over the prized flagship brand Samsung Electronics, and to avoid paying excessive inheritance tax., the deal was part of a corporate restructuring program that was driven by the Lee family to consolidate power. According to Park Sangin, a professor of economics at Seoul National University, the next step was to consolidate both Samsung Electronics and Samsungn Life Insurance under the control of Samsung C&T following that merger.
“But that was not completed yet because of the whole scandal of ex-President Park Geun-hye,” Park said.
In light of the scandal, its corporate strategy office that handled key decisions for the conglomerate was dismantled by Samsung.
The verdict on Lee was unlikely to affect Samsung’s day-to-day business, experts have previously said. According to one analyst, that was because Lee is not the global face of the brand.
Due to a boom in its memory chip business, Samsung Electronics reported a second quarter operating profit of $12.67 billion in July. Earlier this week, Samsung unveiled its newest Galaxy Note 8 handset and it also remained the world’s top smartphone vendor by shipment.
Some uncertainty over the management of the conglomerate and Samsung Electronics wuld be created if Lee loses his appeal and has to serve his five-year prison term.
“The Samsung Group would need an interim top management arrangement,” Hank Morris, Asia adviser at Argentarius Group, said. “That might be a single senior executive from Samsung Electronics … or it could be a small committee of senior executives that would include also at least a member of the Lee family.”
(Adapted from CNBC)