Government offices have joined to come up with the best strategy as Seoul readies to face U.S. activist hedge fund Elliott Management for a possible out-of-court settlement over the fund’s damage claim worth $670 million for the former administration’s meddling in the 2015 merger between Samsung units.
According to sources on Sunday, the justice ministry recently sent a letter to Elliott that it would accept the fund’s request for pretrial negotiations.
U.S. activist hedge fund Elliott Management last month sent a notice of intent to the nation’s justice ministry to alert of an investor-state dispute settlement over the controversial merger of Samsung C&T and Cheil Industries in 2015.
Elliott claimed that the merger of Samsung C&T and Cheil Industries which “resulted in a series of criminal prosecutions of officials of the government of Korea” caused “loss and damage” to the fund, according to the notice of intent disclosed by the justice ministry last week. The fund said the government officials breached Korea’s obligations under the Korea-U.S. Free Trade Agreement and it seeks compensation “estimated to be not less than $670 million.” But it did not explain how it has come up with the compensation figure.
Elliott argued that the Korean government’s unlawful pressure on the state-run National Pension Service (NPS) that held an 11.21 percent stake in Samsung C&T in support of the merger in 2015 caused significant damage to the rest of the shareholders. The U.S. fund held over 7 percent in Samsung C&T at the time and challenged Samsung to stop the merger that it claimed was designed to strengthen heir Jay Y. Lee’s grip on the group.
Last year, Moon Hyung-pyo, former chief of the NPS, was sentenced to 30 months in prison for wielding his power to make the nation’s biggest institutional investor approve the merger. Lee, who has been leading the nation’s top conglomerate on behalf of his bed-ridden father Lee Kun-hee, also served nearly a year in prison for connection with a bribery scandal of impeached President Park Geun-hye.
Before the U.S. hedge fund officially files a lawsuit against the government with the International Centre for Settlement of Investment Disputes (ICSID), the fund and the government have three months to resolve the issue.
The government also took counteraction to raise the leverage ahead of a battle fight.
The Korean prosecution launched an investigation into the activist fund on the charge filed two years ago from the country’s financial watchdog. Early in May, the Seoul Southern District Prosecutors’ Office summoned some Elliott employees to question them on the breach of disclosure rules.
The financial authorities found that Elliott had violated the local disclosure rule by failing to publicly report its purchase of an additional stake in Samsung C&T. But Elliott has denied any wrongdoing, arguing that the deal was not subject to the disclosure rule.
By Song Gwang-sup and Choi Mira
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