First, a bit of background: Samsung is the largest conglomerate in South Korea, with more than 60 affiliates whose businesses range from insurance to shipbuilding. Some of the biggest ones, including Samsung Electronics Co., the one people are most familiar with due to its production of smartphones, tablets, and more, are headed by president-level executives.
Two other affiliates include Cheil Industries Inc., Samsung’s de facto holding company and operator of an amusement park and a fashion business, and construction affiliate Samsung C&T Corp. According to the investigation, which South Korea’s Financial Services Commission launched on Friday, nine Samsung executives spent 40 billion to 50 billion Korean won (roughly the equivalent of $35 million to $45 million) to buy shares in Cheil Industries prior to Cheil Industries publicly announcing its purchase of Samsung C&T.
The timing and size of these purchases suggests that these executives had insider information that Cheil Industries’ stock would rise following its acquisition of Samsung C&T, and that, as a result, they proceeded to buy plenty of stock in order to see the value of their shares rise. And the executives’ prediction rang true, with Cheil Industries’ shares rising substantially following the purchase.
Unfortunately, this puts heir-apparent Lee Jae-yong and the Lee family itself in a bind. Cheil Industries’ acquisition of Samsung C&T is seen by some as an unlawful attempt to transfer power from Samsung chairman Lee Kun-hee, who has yet to recover from a heart attack suffered in 2014, to his son, since Samsung C&T has part-ownership of Samsung Electronics. The prevailing thought seems to be that Lee Kun-hee wanted to give Lee Jae-yong more power over Samsung Electronics.
In addition, the acquisition was seen as a way for the Lee family to consolidate its grip on the Samsung conglomerate and its affiliates, while U.S. activist fund Elliott Associates LP saw the price of the Samsung C&T deal as undervalued and attempted to block the acquisition.
The investigation could take up to a year, with Samsung saying it will wait until the investigation concludes before commenting further on the matter.
