Samsung BioLogics' Accounting Fraud Scandal Likely to Affect Trial of Vice Chairman Lee

The Nov. 14 conclusion of the Securities and Futures Commission (SFC) that Samsung BioLogics intentionally committed accounting fraud is expected to have significant consequences on Samsung Group and Samsung Electronics vice chairman Lee Jae-yong.

Critics argue that the legitimacy of the earlier merger between Samsung C&T and Cheil Industries should be reexamined from scratch. Emerging questions about the legitimacy of the merger can be another variable in the appeal trial of the vice chairman, who was released on probation in February this year.

The Securities and Futures Commission (SFC) said on Nov. 14 that an audit review is necessary for Samsung C&T, the parent company of Samsung BioLogics, sending shock waves to the entire Samsung Group. With trial on Lee still going on, prosecutors’ investigation and civil suits involving Samsung C&T may make things more unpredictable.

The Justice Party, the People’s Solidarity for Participatory Democracy and former Samsung C&T shareholders are currently demanding an audit review on the merger, claiming that the real purpose of Samsung BioLogics’ change of its accounting standard in 2015 was to enhance the value of Cheil Industries, in which the vice chairman was the largest shareholder. At that time, he owned 23% of Cheil Industries but owned no share in Samsung C&T, and Cheil Industries was the largest shareholder in Samsung BioLogics with a 46.3% stake. Regarding such claims, Samsung said that the merger in July 2015 preceded the change in accounting standards and had nothing to do with corporate succession.

The Public Prosecutors’ Office is about to accept the SFC’s request for investigation into Samsung C&T and the scope of its investigation is still unclear.

In the meantime, Ilsung Pharmaceuticals, which was a shareholder in Samsung C&T, is currently proceeding with a lawsuit to nullify the merger. Some point out that the SFC’s ruling may affect the second trial although the court ruled in favor of Samsung at the first trial.

“The implicit solicitation for agreement from the National Pension Service, which was a largest shareholder in Samsung C&T, was the decisive factor that caused the ruling to be overturned between the first and second trials,” said an industry insider, adding, “For now, it is impossible to predict the aftermath of the conclusion of the accounting fraud scandal of Samsung BioLogics.”