Prosecutors Cite 39 Notebooks of Evidence in Samsung Graft Trial

  • Lawyers deny bribery charges in Lee’s first court appearance
  • Trial overshadows Samsung earnings, S8 smartphone preorders

Samsung Rejects Jay Y. Lee Charges

South Korean prosecutors laid out their case against Samsung Electronics Co. Vice Chairman Jay Y. Lee by outlining how a top presidential aide documented instances of alleged bribery in the pages of 39 handwritten notebooks.

That surfaced during Lee’s first court appearance in a trial at the center of one of South Korea’s largest-ever graft scandals, which cost President Park Geun-hye her job and highlighted the murky nature of government-corporate relationships. The billionaire heir to the Samsung group is fending off accusations of corruption just as its largest corporation is trying to regain ground lost to Apple Inc. during 2016’s Note 7 recall debacle.

Wearing a gray suit without a tie, Lee listened calmly as prosecutors took an hour to outline charges against him. Prosecutors said notebooks from An Chong-bum, a former chief secretary for economic affairs and policy coordination, backed claims that the tycoon ordered money funneled to a friend of Park’s. Those funds, portrayed as donations, were intended to secure government backing for a pivotal 2015 merger that shored up Lee’s control of Samsung Electronics, they said.

“The essence of this case is, simply put, the chronic and typical collusion between government and business in our society,” special prosecutor Park Young-soo, who spearheaded the pre-trial investigation into Samsung and Lee, said as the hearing began.

Lee declined to speak in his own defense Friday. But his lawyers maintained that the prosecution had yet to show categorically that the tycoon asked for specific favors when he met with President Park. Lee felt he couldn’t turn down the demands of the country’s most powerful person, but didn’t know the donations could go to her friend, his lawyers argued.

Hearings will resume April 13. Dubbed the “trial of the century,” the proceedings now underway threaten to expose a complex web of ties between the government and the nation’s largest corporations, and have cast uncertainty over succession at South Korea’s biggest conglomerate. Detained outside the capital since February, Lee must win the trial to resume guiding a $260 billion corporation trying to salvage its reputation after a series of exploding phones forced the eradication of the marquee Note 7 line.

Friday’s hearing at Seoul’s Central District Court coincided with the release of Samsung’s best quarterly earnings in almost four years. The world’s largest maker of smartphones reported a better-than-projected 48 percent rise in operating income to 9.9 trillion won ($8.7 billion) for the March quarter, fueled by robust sales of memory chips and displays. The trial also overshadowed the start of pre-orders in Korea for the S8 -- Samsung’s answer to Apple Inc.’s iPhone.

For a timeline on Lee’s legal issues, click here

“As long as Lee is locked up, it won’t be easy for Samsung to restore its reputation completely,” Koo Chang-hwan, chief of the Korea Reputation Center, said before Friday’s hearing began. “Both at home and abroad, there’s nothing worse than menacing woes surrounding a” corporate leader.

The broader electronics-to-energy Samsung group has been in transition since Lee’s father suffered a crippling heart attack in 2014. The prolonged absence of its de-facto head may further delay major decisions. Still, the company has said it’s got a strong management team in place to run the business. And the company’s shares have risen about 16 percent this year, about three times the gain in the benchmark KOSPI. On Friday, the stock was little changed.

What’s Behind the Samsung Bribery Allegations: QuickTake Q&A

Lee is the highest-profile business figure indicted in a sprawling investigation that’s spurred nationwide outrage.

Park indicted Lee in late February along with four other Samsung executives, but the 48-year-old heir was the only one to have been detained. The prosecutor accuses him of conspiring to transfer millions to entities controlled by the president’s confidante, Choi Soon-sil. Those charges included allegedly currying support from the government-backed National Pension Service for a 2015 merger of Cheil Industries Inc. and Samsung C&T Corp. That deal was narrowly approved over the opposition of investor Paul Elliott Singer.

Other counts against Lee include hiding assets overseas, perjury and hiding criminal profits, all related to the bribery case. Samsung said after his arrest that it disagrees with the special prosecutor’s findings and that the court proceedings would “reveal the truth.”

A verdict for Lee is expected by the end of May under a special prosecution law that calls for fast-tracking the case. Lee faces five years to life in prison if convicted. But under South Korea’s three-tier judiciary system, Lee can turn to an appellate court and then the Supreme Court if he loses, with each court taking up to two months to deliberate.

    Before it's here, it's on the Bloomberg Terminal.