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Samsung’s bio unit fined for accounting fraud

FSC says mislabeling of joint venture had major ripple effects
Nov 15,2018
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Financial Services Commission Vice Chairman Kim Yong-beom announces its ruling on Samsung BioLogics on Wednesday at the government complex in central Seoul. [YONHAP]
The country’s financial regulator ruled Wednesday that Samsung BioLogics deliberately violated accounting rules to inflate its value in 2015 ahead of a planned public listing in 2016 and recommended prosecution.

A securities commission of the Financial Services Commission (FSC) said that Samsung’s biotechnology unit engaged in accounting fraud worth 4.5 trillion won ($3.96 billion). The FSC fined the company 8 billion won and imposed a temporary suspension of stock trading.

The regulator also asked Korea Exchange, operator of the country’s stock bourses, to check whether the unit’s listing process complied with capital market laws.

If major irregularities are found, the company could face delisting. But Kim Yong-beom, vice chairman of the FSC, indicated that the chances of that are slim.

“So far, 16 companies were placed under screening, but none of them were forced to delist,” Kim said.

Kim also hinted at a follow-up audit of Samsung C&T to look into whether the fraudulent accounting by Samsung BioLogics improved the financial statements of Cheil Industries, a now defunct retail affiliate merged with Samsung C&T. Cheil Industries was the top shareholder of BioLogics, and the controversial merger in 2015 made the bio company an affiliate of Samsung C&T.

“The measure will invalidate the 4.5 trillion won valuation of Samsung Bioepis, which was stated in BioLogics’s financial statements,” Kim said, “Therefore, there will be some changes in the financial statements of Samsung C&T as the mother company [of BioLogics and Bioepis]. After thoroughly reviewing the issue, we will decide whether to launch an audit of Samsung C&T.”

Samsung Bioepis is a joint venture by BioLogics and Biogen, a U.S. biotech firm, formed in 2012. At the heart of the question was whether BioLogics’s 2015 decision to change the status of Bioepis from its subsidiary into an affiliate was intended to improve BioLogics’s valuation.

The Financial Supervisory Service (FSS), the country’s financial watchdog, has said that BioLogics shifted the status to improve BioLogis’s financial statements, given the conversion allowed the company to use a different accounting standard which factored in market value, not book value, of Bioepis.

With the changed standards, the biopharmaceutical company that suffered operating losses for four straight years managed to record a net profit of 1.9 trillion won in 2015.

Critics believe the upbeat performance was helped by the new accounting standard, as Bioepis was valued at 4.5 trillion won by the market

In response to the ruling, Samsung BioLogics vowed to file an administrative lawsuit to counter the decision.

“We can prove that [BioLogics] has never violated accounting standards,” the company said in a statement. “[BioLogics’s] financial statements were verified by an outside accounting firm.”

In a previous ruling, the FSC refrained from deciding the case, sending it back to the FSS. But the FSS stuck with its initial decision.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]