Samsung Heirs Stage a Korean Soap Opera

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4/30/2012 @ 12:19PM |596 views

Samsung Billionaire Accused Of Stealing Millions From Late Father's Trust

Mfonobong Nsehe, ContributorFor all Lee Byung-chull’s business intelligence and success, one would think he’d possess the common sense to plan his estate before passing away. Now look [...]

 

Lee Kun-hee in Vancouver; February 10, 2010  (Image credit: Getty Images via @daylife)

The chairman of the Samsung Group, Lee Kun-hee, comes in at number 106 on Forbes’ list of the world’s top billionaires, with a reported net worth of $8.3 billion, as of March. But did he acquire some of that fortune illegally from his late father’s trust?  That’s what his brother and sister accuse him of in a recent lawsuit that is growing uglier by the day.

In February, Kun-hee’s older brother, Lee Maeng-hee, filed the suit in Seoul, South Korea. Now joined by two other family members, the lawsuit claims that when their father, Samsung Group founder Lee Byung-chull, died in 1987, he left millions of shares in Samsung Life Insurance (the world’s 14th largest insurance company) as well as preferred stock in Samsung Electronics and cash, in trust.  Specifically, he placed the asset into the name of Samsung executives for the benefit of his family.  Lee Kun-hee then wrongfully took the stock and cash and transferred it into his own name, rather than dividing it among the heirs as he was supposed to, according to the allegations.

The U.S. value of the stock is around $877 million.  If Kun-hee loses, it could potentially cause him to lose his controlling interest in the  Samsung Group, which controls dozens of companies, including Samsung Electronics.

The eldest brother said he never understood why his father did not leave controlling interest to him, which is traditional in Korean society.  Last week, he accused his younger brother, Kun-hee, of acting childish and greedy.

If the allegations are true, why did this take 25 years to come to light? Maeng-hee says he’s been trying to find out what happened to the stock for 25 years.  Events started to come to light in recent years because of a corporate whistleblower who used to be Samsung’s top attoreny.

In 2007, the attorney brought to light that Kun-hee was evading taxes by holding stock and other assets in the name of other people.  Mr. Lee was prosecuted, found guilty of tax evasion, and forced to step down as the Samsung Group chairman. But South Korea’s President later pardoned him, after he paid a large fine and transferred the stock to his own name.  His three-year jail sentence was rescinded.

Prosecutors also tried to bring claims against Lee Kun-hee based on widespread abuses, including bribery and illegally trying to transfer controlling interest in Samsung to his son, again based on information from the whistleblower.   They lacked sufficient evidence of the bribery charges and weren’t able to secure convictions on the rest.

Perhaps that is why Lee Kun-hee is so confident about winning this lawsuit. He vows to fight the suit to South Korea’s highest court, refusing to settle. Last week, he publicly ridiculed his older brother, saying he had been exiled from the family and was not permitted to look at him in the eyes.  Lee Kun-hee told reporters when discussing his older brother, “How dare he say my first name?”

A recent New York Times article discussing the case reported that these types of family fights over large Korean conglomerates are common.  Recent inheritance battles have affected Koren companies like Hyundai, Kumho and Doosan.

It’s a wonder that such rich and powerful businessmen wouldn’t do the proper planning to protect their heirs from court battles like these.  Business succession planning shouldn’t be done through secret arrangements, but through the proper estate and corporate planning.

It’s a lesson for everyone, especially those who own businesses.  Don’t wait until it’s too late to plan how your assets, including your ownership interest in any business you own, will pass onto the next generation.  Choose those who will be in control after you’re gone carefully.  Make sure that you document your planning the right way with an experienced estate planning attorney, and if necessary, a business succession attorney as well.

By Danielle and Andy Mayoras, co-authors of Trial & Heirs: Famous Fortune Fights!, husband-and-wife legacy expert attorneys, and hosts of the national television special, Trial & Heirs:  Protect Your Family Fortune! For the latest celebrity and high-profile cases, with tips to protect yourself, your loved ones, and your clients, click here to subscribe to The Trial & Heirs Update.  You can “like” them on Facebook and follow them on Twitter.

http://www.forbes.com/sites/trialandheirs/2012/04/30/samsung-billionaire-accused-of-stealing-millions-from-late-fathers-trust/

Samsung Heirs Stage a Korean Soap Opera

Steve Marcus/Reuters

Samsung's chairman, Lee Kun-hee, meets with reporters after touring his company's booth at the 2012 International Consumer Electronics Show in Las Vegas earlier this year.

By CHOE SANG-HUN

Published: April 24, 2012

SEOUL — Lee Kun-hee, the chairman of the largest South Korean business conglomerate, Samsung, and the country’s richest man, is not known for being talkative. Partly because of his reticence, what few public remarks he makes are studied by his reverential employees with the same zeal that devout Christians might apply when parsing biblical quotations.

These days, however, Mr. Lee, 70 — perhaps the country’s most exalted business leader — is displaying a wholly different side, allowing himself to be caught up in a spectacular, all-too-public squabble with his elder brother and a sister over the fortune amassed by their father, the late Samsung founder, Lee Byung-chull.

On Monday, the elder brother, Lee Maeng-hee, called his younger brother “childish” and “greedy.” On Tuesday, the Samsung chairman said of his brother: “He says with his own mouth that he is the eldest son of our family, but no one in our family, including myself, regards him as such. In fact, I have never seen him showing up for the family ritual for our father’s anniversary.”

That is about the worst thing one can say publicly about a son, particularly the eldest son, of a Korean family in this Confucian society, where the annual rite for deceased ancestors is considered to be the most sacred duty of children.

“These guys are better than Korean soap operas,” Tom Coyner, a management consultant based in Seoul who is the author of “Doing Business in Korea,” said of the gossip the family feud has inspired.

The dispute has become a sensation in a country where the financial elite face growing public scrutiny in an election year and, as Mr. Coyner put it, people still hold a “traditional perception that if you are very wealthy, you got there by illegal means.”

But Chung Sun-sup, head of chaebul.com, a Web site that specializes in monitoring the country’s family-controlled conglomerates, generally known and spelled as chaebol, said there was a reason for Lee Kun-hee to panic, waxing uncharacteristically spiteful against his siblings: They are demanding part of the shares he controls in Samsung Life, the largest South Korean insurance company, which is also the biggest shareholder of Samsung Electronics, the crown jewel of the conglomerate.

“Depending on how the court rules or whether the siblings can settle their dispute outside court, this could threaten Mr. Lee’s control of the entire group,” Mr. Chung said. “He must feel like he is standing at the edge of a cliff. No wonder he reacts so sensitively.”

The accusations of greed flying back and forth between the families of the rich siblings have kept the local gossip mill turning for weeks.

South Koreans cannot seem to get enough of the family behind Samsung, whose mystery-shrouded inner workings many liken to those of another famous Korean clan: the Kim family that rules North Korea. Like the new North Korean leader Kim Jong-un, Mr. Lee is the third son of the founder but managed to inherit his father’s fortune. Like Mr. Kim’s eldest brother, Kim Jong-nam, Lee Maeng-hee remains alienated and unhappy.

“I still cannot forget the shock,” Lee Maeng-hee said in his 1993 memoir, “Buried Story,” recalling a family meeting his father called in 1976, before a cancer operation, where he designated Kun-hee as successor. “By then, a distance had developed between father and me but I still believed that the ultimate power over Samsung would come to me.”

Lee Byung-chull founded Samsung in 1938 and had three sons and five daughters, most of whom are now leading their own business enterprises. He died in 1987 after breaking with the traditional Confucian practice of handing over the reins of business to the eldest son. Under the leadership of Lee Kun-hee, Samsung has grown into the best-known South Korean brand globally, producing ships, apartments, computer chips and cellphones. Mr. Lee’s shareholdings in Samsung subsidiaries were estimated at 10 trillion won, or $8.8 billion, last month.

Both Samsung and CJ — a food, entertainment and logistics conglomerate whose chairman is Lee Jae-hyun, son of Lee Maeng-hee — maintain that they were not involved in the legal battle between the siblings, which they call a private matter. But in February, CJ demanded that Samsung apologize after Samsung employees were found to have been tailing its chairman. Prosecutors are investigating the case.

The feud over the shares of Lee Kun-hee, the Samsung chairman, began in 2007 when a whistle-blower revealed billions of dollars’ worth of shares that Mr. Lee kept illegally under other people’s names. After paying a penalty tax, Mr. Lee transferred ownership of those shares to his own name, turning himself into the biggest shareholder of Samsung Life.

Mr. Lee said he had inherited the shares from his father. But in February, his elder brother and an elder sister, Lee Sook-hee, along with offspring of another brother, filed lawsuits claiming that they were entitled to a slice of the inheritance and demanding a total of nearly 1 trillion won, or $877 million, worth of Mr. Lee’s shares.

If the court rules against Mr. Lee, it could deprive Mr. Lee of much of the 36 percent of Samsung Life he and a Samsung subsidiary, Everland, now control, said Mr. Chung, head of the chaebol-watching Web site.

Other siblings currently not party to the lawsuits could also lay claim to shares.

“I don’t intend to give them a single penny,” Mr. Lee said last week. “I will fight to the end, going all the way to the Supreme Court and even to the Constitutional Court if I have to.”

On Monday, Lee Maeng-hee, 80, accused his younger brother of “acting childish.”

“Kun-hee has always tried to satisfy his own greedy desire,” he added in a recorded statement released through his lawyers.

In South Korean chaebol, heirs are often at one another’s throats over the riches left to them by deceased patriarchs. Similar feuds rocked conglomerates like Hyundai, Kumho and Doosan.

These disputes, as in Samsung’s case, often center on large sums of money that founders maintained, kept on hand for what analysts said could include the payment of bribes or the avoidance of inheritance taxes, once their fortunes were willed to their children.

“This shows not only bad blood between the brothers but also the lack of transparency in the succession taking place in the conglomerates,” Mr. Chung said.

http://www.nytimes.com/2012/04/25/business/global/samsung-heirs-stage-a-korean-soap-opera.html?pagewanted=2&_r=2