FSC Determines Samsung BioLogics Committed Accounting Fraud

The Financial Supervisory Service (FSS) has provisionally determined that fraudulent accounting occurred in Samsung BioLogics. Although the final result of its one-year investigation is yet to come, a severe punishment seems to be inevitable. The FSS has delivered the tentative outcome of its inspection and follow-up measures to Samsung Biologics and its auditors, Samjong KPMG and Deloitte Anjin.

The FSS called into question the accounting method Samsung BioLogics used in changing the status of Samsung Bioepis three years ago. 

Samsung BioLogics turned Samsung Bioepis, in which it holds a 90 percent stake, into a related company from a subsidiary three years ago when a new drug of Samsung Bioepis was approved in Europe.

At that time, Samsung BioLogics used market value instead of book value in assessing the value of Samsung Bioepis.

Market analysts say that Samsung BioLogics changed the status of Samsung Bioepis as the new drug approval increased the likelihood of Biogen, the second largest shareholder of Samsung Bioepis, exercising its call option.

Then, the market value assessment of Samsung Bioepis boosted the profits of Samsung BioLogics, which had been in the red for four consecutive years from 2011, to 1.9 trillion won in the fiscal year of 2015. Samsung BioLogics listed itself on the KOSPI in 2016.

The FSS is going to listen to the opinions of Samsung BioLogics before putting the issue on the table in the Accounting Oversight Deliberation Committee on May 10 and the Securities and Futures Commission (SFC) makes a final decision. The Korea Exchange explained that listing eligibility review will follow if the SFC rules that the company committed accounting fraud.

In that case, the South Korean stock market may be jolted in that Samsung BioLogics is the seventh-largest in the KOSPI in terms of market cap. In addition, the issue is closely related to the previous merger between Samsung C&T and Cheil Industries. According to the People’s Solidarity for Participatory Democracy and some lawmakers, the same accounting method boosted the value of Cheil Industries, the largest shareholder in Samsung BioLogics, to facilitate the merger two years ago.

Samsung BioLogics, in the meantime, is yet to make an official comment on the notice from the FSS. The company is likely to refute the regulator's conclusion at the Accounting Oversight Deliberation Committee and the Securities and Futures Commission.