Prosecutor’s Office Launches Investigation into Elliott Management

The Public Prosecutor’s Office initiated an investigation into allegations that Elliott Management Corporation violated its duty of disclosure during the merger between Samsung C&T and Cheil Industries.

The allegations were raised by the Securities and Futures Commission (SFC) of the Financial Services Commission in February 2016.

This is the first time that the office summons officials of the activist American hedge fund. Previously, the office called in only officials of Korean organizations, including the Financial Supervisory Service, as testifiers.

The prosecutors' investigation is launched more than two years after the merger between the two Samsung units because Elliott Management has submitted a notice of intent last month to the Ministry of Justice with regard to an investor-state dispute (ISD) over the merger. The office is going to delve into the transactions of Samsung C&T sharesbetween the hedge fund and foreign securities companies after questioning Elliott officials.

The allegation dates back to June 2015, when Elliott Management Corporation opposed the merger. On June 2, 2015 Elliott disclosed that its stake in Samsung C&T exceeds 5%. At that time, Elliott announced that its shareholding in the company increased from 4.95% to 7.12% between June 2 and 4.

The local financial authorities launched an investigation as shareholdings of large-cap stocks such as Samsung C&T could not be increased by 2.17%, equivalent to 3.4 million shares, in just two days. The authorities reached a conclusion that Elliott obtained Samsung C&T shares in advance by means of total return swap (TRS) trading involving foreign securities companies such as Merrill Lynch. They suspected that Elliott intentionally postponed its public disclosure after its deals with foreign securities firms. Then, the SFC accused Elliott in February 2016.