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Samsung heir Lee walks free as legal fightback starts to pay off

Samsung Group heir Lee Jae-yong has regained his freedom after a South Korean appeals court suspended the executive's five-year jail sentence over corruption charges.

The court halved Lee's jail term while suspending a sentence for other charges for four years, Reuters reported.

In its ruling, the appeals court reportedly found that Lee did not seek favors from former South Korean President Park Geun-hye. Presiding judge Cheong Hyung-sik also described Lee's role in the alleged bribery case as "passive compliance to political power," according to Reuters.

The Feb. 5 decision means Lee is likely to resume his roles at Samsung Group, including as vice chairman and director of Samsung Electronics Co. Ltd.

SNL ImageSamsung Group heir Lee Jae-yong
Source: AP

Leaving the Seoul Detention Center after being in jail since February 2017, Lee reportedly told journalists he used his time in prison well.

"It has been a really precious time for a year reflecting on myself," Lee said, adding that he plans to visit his ailing father, Samsung Group Chairman Lee Kun-hee, who suffered a heart attack in 2014.

Lee's lawyers plan to take the case to the country's Supreme Court in an attempt to have the Aug. 25, 2017, decisions overturned, when a South Korean court convicted Lee of bribery, perjury and embezzlement.

The scandal centers on allegations that Samsung paid nearly US$37 million to entities controlled by Park's friend and confidante Choi Soon-sil. The payments allegedly included an US$18.6 million equestrian agreement Samsung struck with a small sports consulting company in Germany.

In exchange, Choi colluded with Park to influence the country's pension service to cast a decisive vote in favor of a 2015 merger of two Samsung affiliates. The merger was seen as key to consolidating Lee's grip on Samsung Electronics. The company acknowledged making the payments, but denied they were in exchange for political favors.

President impeached

Park was impeached in December 2016 for her role in the scandal; her removal was upheld by South Korea's constitutional court March 10, 2017.

Prosecutors, who sought a 12-year prison term for Lee, accuse him of ordering his company to fund these entities.

Lee has always said he was unaware of any payments made by Samsung and that he was not generally briefed on the conglomerate's sports-related donations. He also denied seeking favors from Park and ordering his company to fund entities linked to Choi, and announced he planned to fight the verdict and appeal.

The latest judicial decision is much welcome news for Samsung after 2017 was a dramatic year for the company. Lee's conviction followed the disastrous launch of the Galaxy Note 7, when Samsung was forced to issue a global recall due to widely reported overheating issues.

During Lee's appeal, Samsung Electronics Vice Chairman and CEO Kwon Oh-hyun announced plans to step down from the Samsung Group unit. Citing the "unprecedented crisis" surrounding Samsung, Kwon said he was giving way for the company to have "young leadership to better respond to challenges arising from the rapidly changing IT industry." Kwon will resign from the company's management board in March.

Analysts told S&P Global Market Intelligence that the ongoing legal woes and management turmoil could hamper the company's long-term growth.

So the court's verdict should be seen as "very positive" for the company, according to Noh Geun-chang, a Korea-based analyst and head of technology research at HMC Investment & Securities, as it enables Lee to return to an active role at Samsung.

"It could be good that the owner returns to set standards in such a rapidly changing time," Noh said.

Analysts warned that the South Korean company's recent record profits were mainly a result of a boom in the semiconductor industry. They believe that the semiconductor memory and display business is highly cyclical and the company faces a serious risk if demand for semiconductors falls.

To counter this volatility Samsung has been looking to do M&A in new growth areas, but Lee's legal issues have made it difficult to execute a long-term strategy.

As vice chairman of Samsung Electronics, Lee's role had been to set the company's mid- to long-term strategy. This ruling enables him to do so, Noh said.

When approached by S&P Global Market Intelligence, Samsung Group declined to discuss the case.