U.S. hedge fund Elliott Associates faces a new challenge in its aim to derail the proposed merger of two Samsung Group units, as the prosecution launched an investigation into allegations that Elliott fabricated information in a regulatory filing.

Elliott, the third-largest shareholder of Samsung C&T with a 7.1 percent stake, has been seeking to thwart Samsung’s plan to merge Cheil Industries, the de facto holding company, with the Korean group’s construction and trading unit Samsung C&T. It has argued that the takeover offer from Cheil significantly undervalues Samsung C&T. 

The prosecution on Saturday began investigating Elliott on charges of making a false statement that Deloitte Anjin, which is contracted to provide financial services to Samsung C&T, appointed two accountants as proxies so it could serve as an official agent for the fund.

Deloitte, the Korean arm of a U.S. firm, filed a complaint against Elliott, saying that this claim has harmed its reputation and damaged its relationship with Samsung as an adviser. It said the accountants supported the deal, suggesting that Elliott listed the accountants’ names to give the impression that even Deloitte was against the merger.

“Elliott never appointed the two accountants, and even if they did, we would never have complied with the request as a company that supports the Samsung merger,” an official from Deloitte told reporters.

Elliott’s local spokesman Hwang Nu-ri said, “Elliott has nothing to say on the matter.”

Elliott’s reputation among local audit companies was further marred when EY Han Young accused Elliott of manipulating its corporate evaluation report.

EY Han Young, a local member firm of London-headquartered Ernst & Young, claimed Elliott violated a contract by disclosing the report. The audit firm said the report was not fit to determine an M&A as it was “based on limited information revealed on regulatory filings” and therefore was merely designed to aid internal decision-making.

“Elliott partially edited the original draft and submitted it to the court without any consultation with EY Han Young,” the audit firm said in a statement.

Samsung C&T officials said they believe Elliott tampered with its report to reinforce the hedge fund’s claim that the proposed 1:0.35 stock swap ratio beteeen Cheil and Samsung C&T would damage the interests of Samsung C&T shareholders, including Elliott.

“We categorically deny these claims,” Elliott’s spokeswoman Hwang said.

Elliott was also bombarded with criticism on June 26 when the company posted a mistranslated transcript of its meeting with Samsung C&T in February.

According to Samsung, the transcript quoted a Samsung C&T official as saying the firm did not consider any merger that would negatively affect shareholders’ interest. But the quote actually came from Elliott’s side, and was a mistranslation of “Samsung should not consider such a merger.”

“We admit that it was not translated precisely, and made corrections on that immediately after the finding,” Hwang said. “It was a rough translation, with no intention of fabricating information.”

Some industry watchers claimed the incident was not a simple mistake and it was “intentionally done to create the misunderstanding that Samsung had changed its position on the merger.”

This view gained more support within markets with reports a special purpose company run by Elliott allegedly having attempted to sell two multiplex buildings in Daegu without disclosing the information of rent arrears and asbestos usage.

Igis Asset Management in December sued Elliott’s special purpose firm for “selling Daegu City Center without informing about the tenants’ overdue rent,” seeking a total of 2.2 billion won ($1.95 million) in damages.

Igis also claimed that it purchased Daegu Finance Center from Elliott after being guaranteed that the building was asbestos-free, but belatedly discovered the substance after a building examination. Igis did not sue after reducing the purchasing price by 2 billion won.

“Elliott’s stockjobbing is also being shown in our cases,” Igis said in a statement, expressing frustration over Elliott’s “irresponsible” attitude.

The battle between Samsung and Elliott continues to twist and turn with both sides having won a round each.

On Tuesday, a Seoul court rejected the hedge fund’s injunction to block the merger, siding with the conglomerate’s generational leadership transition.

But the Institutional Shareholder Services, a U.S. proxy advisory service, released a report on Friday recommending investors in Samsung C&T to reject the merger, claiming that it could significantly disadvantage investors. 

By Suk Gee-hyun
(monicasuk@heraldcorp.com)