US Hedge Fund Prevails Against South Korean Government in Investor-State Dispute

Elliott Associates won in a claim involving Park Geun-hye administration's intervention for Samsung's third generation succession.

US Hedge Fund Prevails Against South Korean Government in Investor-State Dispute

Photo: Protesters demand Lee Jae-yong and Park Geun-hye pay for South Korean government's damages award against Elliott Associates.  Credit: People's Solidarity for Participatory Democracy.

On June 21, 2023, the Permanent Court of Arbitration in the Hague ruled that the South Korean government must pay Elliott Associates, L.P. approximately USD 53m in damages. Including the award of costs, the South Korean government will be required to pay approximately USD 108m to the US-based hedge fund. Elliott, infamous for its litigation campaign against Argentina, filed suit against the Republic of Korea in 2018, invoking the investor-state dispute clause of the Korea-US Free Trade Agreement.

Elliott’s claim was based on the bizarre corruption scandal of former President Park Geun-hye 박근혜, who was impeached and removed from office in 2017, and the passing of Samsung Group 삼성그룹 leadership from the aging chairman Lee Geon-hee 이건희 to his son Lee Jae-yong 이재용. In 2015, in order for the younger Lee to take control of the group, Samsung Group proposed that Cheil Industries 제일모직, a Samsung Group entity that Lee Jae-yong controlled, acquire Samsung C&T at a steep discount.

Anticipating the announcement, Elliott built a position of over 7% in Samsung C&T, becoming the company’s third-largest shareholder, and began an activist shareholder campaign to oppose the acquisition. The deal was narrowly approved by shareholders after the National Pension Service 국민연금, Samsung C&T’s second largest shareholder with a more than 11% stake, voted in favor of the acquisition although the vote severely damaged the value of Samsung C&T shares that the NPS itself held.

The reasons behind the NPS’s seemingly inexplicable vote came to light during criminal investigation of Park Geun-hye following her impeachment in 2017: Park, through her Health Minister Mun Hyeong-pyo 문형표 보건복지부 장관, directly ordered the NPS to vote against its economic interests because Samsung bribed Park’s confidant Choi Sun-sil 최순실, the daughter of a shaman who claimed to speak to Park’s dead mother. Elliott subsequently brought the investor-state dispute against the South Korean government, and has now prevailed after five years of litigation.

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