A legal battle has started between Samsung BioLogics Co. and the Securities and Futures Commission (SFC) over the allegations that the biotech company intentionally committed accounting fraud.
The Seoul Administrative Court held a hearing on Dec. 19 on the administrative lawsuit filed by Samsung BioLogics for cancellation of the penalties imposed on it by the SFC.
At the hearing, Samsung BioLogics requested the court to halt the execution of the penalties as they would drive the company out of business, while the SFC explained the appropriateness of the sanctions. Asserting that it has not violated the international accounting standards, Samsung BioLogics said the SFC’s action would cause irreparable damages to it.
Samsung BioLogics said, “The SFC imposed sanctions based on a biased view that there was accounting fraud. The bio industry requires a high level of reliability and morality. When we admit that there was accounting fraud, our business can be in danger of going out of business. Please suspend the execution of sanctions in the contemplation of the future of the company and investors as well as the South Korean biotech industry.”
Last month, the SFC concluded that Samsung BioLogics intentionally committed accounting fraud at the end of 2015 by changing the status of Samsung Bioepis Co., a company jointly established with U.S.-based bio firm Biogen, from a subsidiary to an affiliate. It believed that Samsung BioLogics broke accounting rules by appropriating the appraisal profit at 4.5 trillion won (US$3.99 billion) without any factors that could change the judgment on the management control over Samsung Bioepis at that time.
On this basis, the SFC decided to recommend the dismissal of CEO and executives who were in charge, appoint auditors for three years, request the revision of financial statements and impose an 8 billion won (US$7.1 million) fine. In addition, it pursued a prosecution charge against the company and CEO.
In this regard, Samsung BioLogics stressed that the effect of the sanctions should be suspended until the outcome of the case comes out, saying, “Great damage to the corporate value is inevitable and shareholders and creditors are in great shock and confusion as well.”
However, the SFC refuted Samsung BioLogics’ claims saying the sanctions were appropriate. It said, “Samsung BioLogics applied abnormal accounting rules to avoid the problem of call options be treated as debt brought up in the process of merger between Cheil Industries Inc. and Samsung C&T Corp. in 2015.” The SFC said the sanctions are proper because of intentionality and there is no need to suspend the execution of sanctions. It said, “The only disadvantage that Samsung will suffer
Samsung BioLogics will be damage to corporate image even if the company rewrites its financial statements.”
In particular, the SFC said, “When Samsung BioLogics loses the case with the suspension of execution of sanctions, damage can increase with mass production of new investors,” asking to turn down the request for suspension of execution.
The court which carefully listened to the claims of the two sides said, “We need to review the case. We will make a ruling by the end of January next year if possible.” The judge asked both sides to submit reference materials needed for ruling by January 12 to 15 next year.