Amaret Sila-On, former chairman of the Financial Sector Restructuring Authority (FRA), and FRA secretary-general Vicharat Vichitvadakan were charged with helping Lehman Brothers evade taxes on the assets it purchased at the FRA auction in August 1998.
Lehman Brothers won auctions for 11.5 billion baht of corporate loans against their original value of 24.62 billion baht. It put up property as collateral on Aug 13, 1998.
Prosecutors said this could constitute a conflict of interest and lack of transparency as Lehman Brothers (Thailand), a company under the same group, was appointed as an adviser to the FRA.
Lehman Brothers Holding Inc was required to seal the deal within seven days, or by Aug 20, 1998, together with an initial payment of 20% of the purchased assets value, or 2.3 billion baht. The company would also have been subject to tax if it had signed the deal.
However, the US investment banking firm failed to sign the deal, only placing a 10-million-baht pledge for the purchase.
Instead, the company set up the Global Thai Property Fund to enter into an agreement with the FRA on behalf of Lehman Brothers, thanks to a regulation issued earlier by the FRA, under the guidance of its adviser, Lehman Brothers (Thailand).
The court said this could be considered as an attempt to evade taxes via the property fund, which would be tax-exempt by law.
In September 2012, the Criminal Court sentenced the two defendants to two years in prison and fined them 20,000 baht each. The jail sentence was suspended for three years, in consideration of the defendants' ages. Amaret was 79 years old and Vicharat was 65 then.
The Appeal Court on Tuesday reversed the verdict, deciding no damage had been done to the state.
The court agreed with Amaret's argument that since the liquidated assets were "bad", it was impossible to expect the sale to fetch the original value of assets.
The FRA was a body set up after the 1997 financial crisis to clear bad loans and assets from financial institutions.
The Bank of Thailand was forced to float the baht on July 2, 1997 after it had used up foreign reserves to defend the local currency and lost the battle with foreign exchange speculators.
By Oct 24, 1997 the dollar depreciating by 60%, bankrupting many Thai companies, which had borrowed extensively in foreign currencies, especially the dollar, during the pre-1997 economic boom time.
Banks were saddled with bad debts and had to sell bad assets pledged to them to the FRA, which in turn auctioned them off for 22% of the orginal prices on average.