[Aju News DB]
South Korea's market watchdog on Wednesday referred US hedge fund Elliott Associates to state prosecutors for allegedly violating disclosure rules when it tried to prevent a merger of two Samsung Group affiliates.
The Securities and Futures Commission invoked the total return swap (TRS) system for the first time to punish Elliott.
The fund was accused of abusing the TRS system to increase and hide its holdings in Samsung C&T, the group's trading arm, for an attack on its merger with Cheil Industries.
The attack came as the country's most-powerful conglomerate was accelerating corporate restructuring to put group heir and Samsung Electronics vice chairman Lee Jae-yong onto center stage.
Elliott insisted the merger would hurt the interests of shareholders as it is aimed at expediting the transfer of group ownership to Lee Jae-yong, the only son of Samsung's ailing boss Lee Kun-hee.
Samsung narrowly won a proxy vote battle to complete the merger in September last year.
Initially Elliott disclosed that it had bought an additional 2.17 percent stake on top of 4.95 percent in Samsung C&T.
The new shares were already held by foreign brokerage houses under a TRS arrangement with Elliott, the commission said, adding the fund had bypassed the disclosure rule by illegally "parking" its shares in investment banks.
South Korea bans a parking deal in which a stock owner keeps his or her security holdings in others' accounts in order to hide real ownership.
A trader should also issue a public disclosure within five days of acquiring a stake of more than five percent in a listed company. Violators is punishable by up to three years in prison or a maximum fine of 100 million won (81,300 US dollars).
With a 7.12 percent stake in Samsung C&T, the fund had launched a high-profile campaign to block the merger.
The merger helped the founding Lee family cement control by allowing the group to strengthen its cross-ownership structure since the merged affiliates had stakes in other companies.
The group has shed thousands of jobs, reflecting its struggle to cut costs as Samsung Electronics was hit by plunging profitability of its handset business due to competition with Chinese players rolling out price-competitive models.
It has struggled to streamline its portfolio by selling non-core units since the group patriarch was hospitalized in May 2014.
아주경제 임장원 기자 = cwlim34@ajunew.com
reporter
Park Sae-jin
swatchsjp@ajunews.com
