March 31. 2017. South korean president park geun hye was arrested on corruption charges and and eventually sentenced to 25 years in prison. Making her the fourth south korean president a row to be either arrested or impeached.

As part of the same bribery case. A prominent businessman by the name of lee jae. Young was also given a five year prison sentence and lee wasn't just any businessman. His grandfather was a founder of samsung and lee had inherited almost complete control over the family conglomerate with an estimated net worth of 11 billion dollars lee was already one of the richest man in the world.

With more money than you could spend in a thousand lifetimes. So what would you possibly have to gain by bribing. The president while the lee family had founded samsung over the decades their ownership of the conglomerate had declined substantially as they raised external capital to fund their growth because of this the family only directly owns a tiny percentage of the outstanding shares with most of them being held by public market investors despite this the family has maintained voting control by setting up an absurdly convoluted structure of circular ownership. Which is intentionally difficult to understand by 2015 this ownership structure was reaching its breaking point and if lee wanted to remain on top.

He would need to consolidate his power to do this he devised what was perhaps the most brazen corporate corruption scheme in modern history. This scheme struck to the core of korea's institutions ultimately bringing down its president who had a 3 approval rating at the time of her arrest in this video or podcast. If you're listening on spotify. We'll look at the dark secrets that samsung doesn't want you to know about and how this highlights.

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So make sure you click the link in the description below to join myself and millions of other investors in the moomoo community and now back to the video with a gdp of 16. Trillion dollars. South korea. Is one of the most advanced countries in the world today they are home to some of the largest and most innovative global companies including samsung sk hynix hyundai and others but you see korean companies aren't like american companies in the us large companies go public on a stock exchange and their shares are purchased by the general public.

The shareholders vote for the board of directors and ceo. If the company underperforms. The shareholders can force the ceo to resign even if he's the founder. But in south korea.

Things are very different the large companies are publicly traded. But that's about where the similarities end korea's economy and stock market are dominated by family controlled industrial conglomerates with the top five of them making up more than half of the entire market cap of the korean stock exchange these include lg the steel making conglomerate costco semiconductor giant sk holdings the automobile company hyundai and samsung which is the largest by far you likely know samsung for their smartphones. But is much more than just a consumer electronics producer samsung found its humble beginnings in 1938 when it was founded by the korean businessman libyan chol. They started off as a trading company buying fish and other goods from fishermen and selling them to retailers for a profit over the decades.

They gradually expanded into an ever increasing number of unrelated businesses. Most notably electronics currently there are 11 main companies bearing the samsung name they do everything from engineering and construction semiconductor manufacturing and pharmaceuticals samsung cnt corporation even owns a fashion retailer called 8 seconds of course building such a massive business empire costs money and a lot of it they raised this money from external investors by listing. These companies on the stock market today there are more than 10 samsung related companies on the korean stock exchange. The problem with taking your company public is that you now have to answer to shareholders.

If they don't like the direction that the company is going they can force you out as chairman. This would be unacceptable for the lee family. They want the conglomerate to be passed down from generation to generation. Getting bigger and greater each time to maintain control they turn to the tried and true strategy of cross ownership.

Which has been used by family conglomerates for decades. Raising external capital. Dilutes. Your economic ownership of the enterprise.

But with cross ownership. You can still maintain voting control. Let's hypothetically say you own three companies in your family business empire. The main company and two sister companies you own a 51 stake in each of the sister companies and each of the sister companies.

Owes. A 26 stake in the main company you have majority voting control over both sister companies. So by extension you control their stakes in the main company. Even.

Though you only have a minority economic stake in the main company. You have complete voting control. The lee family took cross ownership to the extreme with over a dozen companies in the samsung empire. They engineered an ownership structure.

So convoluted that even most investment bankers and corporate lawyers couldn't understand it with this. The founder b. Pyeongchon. Was able to seamlessly pass control to his son.

Lee. Kun. Hee. In 2008.

Lee. Kun hee. Was forced to step down. As chairman.

After being indicted on tax evasion charges at this point. It looked like the lee family's reign. Might finally be coming to an end. But they weren't about to give up so easily shortly after khan.

He's resignation his son vijay yang took over as chief operating officer for samsung electronics. The crown jewel of the samsung empire by this point it was clear that he was the crown prince of the dynasty. But it wouldn't be that simple because samsung had raised so much external capital. The family's ownership was reduced to a very small percentage even with the cross ownership.

They didn't have complete control so lee jae yong needed a way to consolidate his power in 2015. Two companies. Within the samsung family child industries. And samsung.

Cnt announced. Their intention to merge lee jae yong. Was a major shareholder in chill industries. And was a major driver behind the merger.

The official reason for the merger was that it would create synergies by putting the two companies together they could help each other grow. But many investors were skeptical of this chill owned among other things various fashion brands including the fast fashion retailer. 8 seconds. Samsung cnt was a construction and engineering company that built skyscrapers you have to do quite a bit of mental gymnastics to justify the merger of a fashion company and a construction company from a business perspective.

So why did lee want to do it samsung cnt owned a stake in samsung electronics lee's ownership in chill was greater than his ownership stake in samsung cng by merging the two companies together he would gain control over the samsung electronic shares that samsung cnt owns thus increasing his control over samsung electronics however there was a problem for the deal to close they needed to get two thirds of samsung's cnt shareholders to approve it many investors thought the terms of the deal were unfavorable to samsung cnd. The american hedge fund elliott management bought a seven percent stake in samsung's cnt. They said that cmt stock was undervalued while chill stock was overvalued thus the all stock merger would unfairly benefit chill at the expense of cnd things were looking bad for lee with investors revolting it looked like the merger might not be approved this would prevent him from consolidating his power. And the lee family's 70 year reign over samsung could come to an end luckily for lee south korea's recently elected president park geun hye was extremely corrupt in exchange for a big enough check.

She could make all of his problems disappear to understand why park was so corrupt. We first have to look at this woman choi. Soon sil choi was an unofficial advisor to park and at the time almost nobody in the public had ever heard of her. But she was perhaps the most powerful woman in the entire country president park geun.

Hee is a daughter of park chung hee. A military dictator who ruled south korea in the 1960s and 70s when gun he was still young both her mother and her father were assassinated by their political opponents with both of her parents dead gun. He was traumatized and left in a vulnerable state choi. Te min.

Who was the leader of a religious cult at the time contacted. The young gun. He t. Min told.

The future president that he saw her mother and his dreams apparently she believed him and she grew very close to the choi family choi thai men's daughter choi soon sil became close friends with park gun heat in hindsight. This may all have been part of the choi family's plan to gain control of the country from the shadows park entered politics and quickly rose the ranks in 2013. She was elected the first female president of south korea by this point park was basically a puppet with troy pulling the strings officially choi had no government position nor security clearance. Her day job was running a fancy italian themed cafe that she operated in a wealthy soul neighborhood from her coffee shop.

She would be in constant contact with park controlling her from the shadows. So what did choi want what was she trying to accomplish. It was all about money troy would use president park to solicit bribes from south korea's large family run conglomerates for these multi billion dollar enterprises. Paying a few million dollars to get on the good side of the government was a small price to pay.

Choi was basically a mob boss shaking down korea's largest companies for protection money during park's presidency large south korean corporations donated about 70 million dollars to supposedly charitable organizations set up by troy but there was nothing charitable about these organizations. They were choi's personal piggy bank. Which she used to fund her lavish lifestyle. The single biggest donor to choice slush fund was samsung heir lee jae yong.

But he wasn't giving his money for free in exchange he wanted his merger to be approved remember that many samsung cnt shareholders were against the deal and were planning to vote against it as it stood it didn't look like he would get the two thirds majority required in the shareholder vote. Fortunately for lee one of the biggest shareholders in samsung cnt was a south korean public pension authority nps who owned a 12 stake this 12 percent state could be the pivotal vote for approving the merger park allegedly sent her health secretary to meet with mps's chief investment officer. And pressured him to vote in favor of the deal. Lee.

Jae. Yong. Also met with nps leading up to the shareholder vote. Lee's bribery paid off and nps voted in favor of the deal with the two companies merged he had successfully consolidated his power over samsung electronics investors bulked at this abuse of power by the lee family and the share price of the combined company fell by more than 20 in the first month.

This move cost the nps 500 million dollars in losses losses that were ultimately borne by korean pensioners while the samsung cnt merger was highly controversial it'd be very difficult to prove any wrongdoing. It was structured as the perfect crime president park did not directly receive any money from samsung. The money went to charities controlled by choi choy had no official position in the government. So it was hard to establish a direct link the only reason that she got caught was her own stupidity in 2014.

Choi went to germany and temporarily occupied an office building. After vacating. The office choi accidentally left her tablet computer. There ironically.

It was a samsung tablet. A korean media outlet got hold of this tablet and found numerous drafts of parks presidential speeches that troy had personally edited this was smoking gun evidence that choi was the puppet master behind park park initially denied the allegations. But soon confessed as there is simply no way to explain away choice tablet massive protests erupted across south korea with thousands of protesters. Demanding her resignation park's approval rating plummeted to three percent which might just be the lowest approval rating of any democratically.

Elected leader ever the house of cards quickly unraveled and troy was sentenced to 20 years in prison. As the mastermind of the crime. President park was sentenced to 25 years and numerous of her cabinet secretaries were also locked up samsung heir li. Ji yong was sentenced to five years this was a big turning point for the country as it was the first time.

The head of such a powerful corporation like samsung. Was arrested the family run conglomerates of south korea have gotten extremely large over the years employing millions of people within the country. The government has been hesitant to prosecute the leaders of these companies and fear that it would damage their global competitiveness. But as we've seen with the samsung bribery case.

There are also drawbacks to letting these companies get too powerful. Just because lee jae. Young is a grandson of the founder does that automatically mean that he's the most qualified person to run samsung. And these insane ownership structures lead to inefficient mergers.

Which make little strategic sense. But despite the public backlash against the corruption scandal. It looks like very little has changed in the summer of 2021 lee was released from prison early after serving only 207 days behind bars. The president mu jae in said that samsung was too important for the korean economy despite these crimes.

He was supposedly in the public interest to release him early so he could go back to leading the samsung group it appears that at the upper echelons of korea's business community. Some people are just above the law alright guys that wraps it up for this video. What do you think about the samsung scandal. Do you think lee jae yong.

Should have been released early let us know in the comments section below as always thank you so much for watching. And we'll see in the next one wall street millennial signing out.