South Korean prosecutors decided not to indict U.S. hedge fund Elliott Management Corp., ending the four-year-long investigation into whether the activist fund violated disclosure rules during its stake purchase in Samsung C&T Corp. prior to a merger with another Samsung affiliate.

The Seoul Southern District Prosecutors’ Office dropped the charges against the company last month after “finding no legal grounds for the allegations,” according to multiple sources on Monday.

The probe into Elliott began in February 2016 after Korean financial regulators accused the fund of breaching disclosure rules when it increased shares in Samsung C&T to 7.12 percent to 4.95 percent through total return swap (TRS) deals.

Local rules require shareholders with a stake of 5 percent or more to publicly disclose any changes in stock ownership within five days of the change. While Elliott announced its stake purchase within two days, it was suspected of deliberately withholding the information despite increasing its stake through TRS deals weeks before, in an illegal practice known as stock parking.

Stock parking is a scheme by which a company has other brokerages purchase shares on its behalf and buys them back later, often in order to conceal the stock’s real ownership.

Experts say the prosecution’s latest decision could prompt more foreign vulture funds to engage in stock parking to exercise control over Korean companies.

The decision is also likely to bolster Elliott’s standing in a separate investor-state dispute settlement it filed against the Korean government to compensate for losses over what it claims is Seoul’s intervention in the 2015 merger of Samsung C&T and Cheil Industries Co.

Elliott began the legal dispute in 2018 seeking 800 billion won ($669.2 million) in damages after narrowly losing a proxy battle to block the merger of the two Samsung affiliates, a deal that the fund argued was designed to facilitate the Samsung heir’s succession at the expense of small shareholders. The merger went through after the state-run National Pension Service cast a swing vote in favor of Samsung.

The controversial merger was part of a major corruption scandal that led to the impeachment of former President Park Geun-hye and arrest of Samsung Group’s de-facto leader Jay Y. Lee. Lee served a year in jail on charges of bribing the president’s confidante to win government support for the merger. He was freed in 2018 after his sentence was suspended.

Korean prosecutors are mulling whether to indict the Samsung heir over the 2015 merger and alleged accounting fraud, despite recommendation from an outside panel last week that advised against the indictment.

By Jin Young-tae and Kim Hyo-jin

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