The Securities and Futures Commission (SFC) concluded on Nov. 14 that Samsung BioLogics intentionally committed accounting fraud in changing its accounting standard in 2015.
Kim Yong-beom, vice chairman of the Financial Services Commission who heads the SFC, told a news conference at the government office in Seoul, "We judged that Samsung BioLogics intentionally violated the accounting rule by arbitrarily changing its accounting standard for 2015.”
The accounting standard Samsung BioLogics used for 2015 was different from the one it had used until 2014. “Samsung BioLogics changed its accounting standard to justify its decision to change the status of Samsung Bioepis," Kim said.
As a result, the committee advised Samsung BioLogics to dismiss its CEO and filed a request with the prosecution to investigate him and the company.
"Trading of Samsung BioLogics shares will be suspended for the time being as a result of the committee's decision today, and the Korea Exchange will review whether the company is qualified for listing on the stock exchange.
Kim did not say how long Samsung BioLogics stock will be suspended for trading.
Regarding the 2014 accounting treatment of Samsung BioLogics, the commission said, "We judged it to be a gross negligence."
Samsung BioLogics was audited twice by the Financial Supervisory Service, which suspected that the company changed its accounting standard without any justifiable reason. Based on its findings from the two audits, it judged that the company intentionally committed accounting fraud and asked the SFC to punish it sternly.
The FSS said Samsung BioLogics changed the status of Samsung Bioepis from a subsidiary to an affiliate, even though there were no factors that justified this change. As a result of the change in accounting treatment of Samsung Bioepis, the FSS argued, Samsung BioLogics turned from a loss-making company to a profitable one, which in turn boosted its corporate value by 4.5 trillion won.
On the other hand, Samsung BioLogics argued that the change in accounting standard for 2015 was due to the increased possibility that Biogen, the second largest shareholder of Samsung Bioepis, could exercise its call option (right to buy stocks).
When Samsung Bioepis was established in 2012, Samsung BioLogics granted Biogen a right to purchase 50 percent minus one share in Samsung Bioepis.
Samsung BioLogics said the likelihood of Biogen to exercise its call option increased following the Korean government’s approval of biosimilars developed by Samsung Bioepis.
Samsung BioLogics also argued that if Biogen exercised its call option, Samsung BioLogics would no longer be in full control of Samsung Bioepis as Biogen would put its own directors on the board of the joint venture. So it was inevitable to change the status of Samsung Bioepis, according to Samsung.
But the experts on the SFC found Samsung BioLogics’ explanation unconvincing and decided to slap it with harsh punishment.
In July, the committee also filed a request with the prosecution for investigation into Samsung BioLogics’ failure to disclose its granting of a call option to Biogen. Samsung BioLogics disclosed Biogen’s call option in 2015, although the option was granted in 2012.
Yet Samsung BioLogics reacted strongly against the action and filed an administrative lawsuit against the SFC.