Elliott’s $718m claim against South Korea poses risk for Moon
Hedge fund seeks compensation over Seoul’s intervention in Samsung C&T-Cheil merger
Elliott Management has detailed its $718m claim against South Korea over losses from the 2015 merger of two Samsung units in a case that returns to the spotlight allegations of the cosy relationship between the chaebol, the country’s powerful conglomerates, and the government in Seoul.
The US activist hedge fund and the South Korean government are locked in what is expected to be a years-long arbitration over the fund’s damages claim stemming from the former administration’s intervention in an $8bn deal to merge Samsung C&T and Cheil Industries.
According to the 149-page statement of claims, submitted to the Permanent Court of Arbitration in The Hague and seen by the Financial Times, Elliott has sought damages of $581.3m and, as at the end of March, a further $136.7m in interest.
The claims relate to the political and business scandal that gripped South Korea after erupting in 2016 and sparked a series of trials that led to prison sentences handed down to former president Park Geun-hye, Samsung vice-chairman Lee Jae-yong and former health minister and chair of the National Pension Service Moon Hyung-pyo, among others.
But the arbitration proceedings, launched last year and expected to run for about two more years, now threaten to entangle President Moon Jae-in’s administration, despite Mr Moon’s sweeping anti-corruption drive since taking office in 2017.
According to people with close knowledge of the case, officials in Seoul have in recent weeks sought to limit what information in Elliott’s statement could be made public, a move, they say, that highlights sensitivity about the case within the Moon administration.
South Korea’s justice ministry did not immediately respond to questions.
“The Moon administration has been fighting to redact as much of [Elliott’s statement of claims] as possible, to prevent the Korean public from looking at the facts,” a person familiar with the case said.
“There is a general belief that everything that can be said about [the scandal] probably has been said about it . . . but the arbitration is bringing a number of new issues to the forefront,” the person added.
The final version released by the court on Thursday omits the names of the president, senior officials and Samsung executives, but retains their titles, meaning they are still easily identifiable.
In the statement, billionaire Paul Singer’s New York fund details claims of a multi-layered process whereby government officials acted to ensure the state-owned National Pension Service, a key Samsung shareholder, approved the merger that was opposed by Elliott.
The events, Elliott claims, saw interventions by former president Park, the presidential office, known as the Blue House, the health ministry and the NPS, and were the result of corruption and bias in favour of “a domestic corporate chaebol family over an unpopular foreign investor”.
The statement draws on witnesses in attendance at the numerous court hearings related to the scandal and sheds new light on the role played by Park’s longtime confidante Choi Soon-sil, who has also been jailed, and high-ranking government officials.
Another person familiar with the case said that while many aspects of the scandal had previously been reported as speculation, the Elliott statement “pulls all the pieces together”.
The court-filed claim “for the first time paints the full picture of how Samsung and the government were working together to corruptly and improperly effectuate the 2015 merger of Cheil and Samsung C&T, over the objections of Elliott and other shareholders, by pressuring the National Pension Service to cast the deciding vote in the merger”, the person said.
The arbitration proceedings come against a backdrop of a slowing South Korean economy, with the country’s major technology exporters hit by slowing global growth and the US-China trade war.
Lee Won-il, head of Zebra Investment Management, a hedge fund, said that given the country’s economic dependence on the chaebol, the Moon administration could no longer be seen politically as positioned against companies such as Samsung.
“The Moon government will take a patriotic stance for the time being. Koreans are taking [the case] as a matter of ‘us or them’,” said Mr Lee.