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Investors Moving to Sue FSS over Samsung BioLogics
Blame Game among Regulators
Investors Moving to Sue FSS over Samsung BioLogics
  • By Jung Suk-yee
  • May 8, 2018, 11:20
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Investors are moving to sue FSS for causing them losses by imprudently disclosing to the public the outcome of its audit on Samsung BioLogics.
Investors are moving to sue FSS for causing them losses by imprudently disclosing to the public the outcome of its audit on Samsung BioLogics.

A group of investors are moving to file lawsuits against the Financial Supervisory Service (FSS) as they have suffered losses due to its imprudent behavior and double standard on Samsung BioLogics’ accounting practice.

They argue that the FSS caused them huge losses by making an unprecedented and imprudent move regarding its recent inspection into Samsung BioLogics.

On May 1, the FSS disclosed to the public the conclusion of its inspection that Samsung BioLogics committed accounting fraud to inflate its market value.

Investors note that the financial regulator has thus far never disclosed to the public the outcome of its inspection into individual companies before its findings have been proved. This is because the public disclosure of unproven inspection results could affect the stock prices of audited companies.

But the FSS has made public its allegations against Samsung BioLogics before the Securities and Futures Commission (SFC) reach a conclusion on them. The regulator’s disclosure led investors to take its findings as a fait accompli and caused the company’s stock price plummet.

The SFC is expected to meet this month to determine whether the FSS’s allegations are true or not. The FSS will face severe criticism if the allegations are not proven at the meeting.

Following the FSS’s disclosure of the audit result, Samsung BioLogics’ stock price fell by 26 percent, reducing its market cap by approximately 10 trillion won (US$9 billion).

Investors are annoyed by the regulator’s indiscreet and ill-advised behavior. “It should have been more cautious in making public its audit result. It should have taken into account the consequences of its unprecedented behavior,” one investor said.

Under the circumstances, the local financial authorities hurriedly fixed the schedule for the first deliberation of the Accounting Oversight Deliberation Committee. The FSS reported the case to the Financial Services Commission (FSC) on May 6, and the first deliberation is scheduled for May 17 before the SFC meeting on May 23 or June 7.

Some investors are moving to file petitions with the Presidential Office against the financial regulator’s double standard on Samung BioLogics’ accounting practice.

More than 100 civil petitions have been posted on the Blue House (Presidential Office) petition board to hold the financial authorities accountable for their losses.

They note that the FSS changed its stance on the matter after the change of government, suggesting that the regulator’s inspection was politically motivated.

“The key is whether the FSS has any document confirming that Samsung BioLogics committed an accounting fraud,” said an official of the Korea Institute of Certified Public Accountants (KICPA), which examined the accounting books of Samsung BioLogics in 2016. “The responsibilities of the KICPA and the accounting firms that audited the company will be determined based on the persuasiveness of the FSS judgment.”

In the meantime, the financial authorities are shifting the blame to one another. The FSS is complaining that it is not the one to be blamed because the scandal was triggered by the KICPA’s pre-listing supervision that was entrusted by the SFC of the FSC.

The FSC, meanwhile, is claiming that the controversy has been fueled by the FSS having disclosed its inspection outcome to the public without any discussion with it.

The FSS said in response that the scope of the business entrusted by the FSC included public disclosure of its notice to Samsung Biologics according to the Act on External Audit of Stock Companies and it notified the FSC of the need for doing so on April 25.

The Samsung BioLogics scandal is likely to pose a significant burden on the new FSS Chairman Yoon Seok-hyeon, who is scheduled to take office on May 8.