[Newsmaker] Samsung BioLogics CEO apologizes, pledges to minimize fallout from accounting fraud ruling

Samsung BioLogics CEO Kim Tae-han on Friday apologized to the shareholders for inconveniences caused by the recent accounting fraud ruling issued by South Korea’s Securities and Futures Commission, pledging to do his best to minimize damage to the firm’s valuation and business activities.

“We apologize for any inconvenience that you have suffered in exercising property rights as a result of the suspension of trading of shares due to the SFC’s unwillingness to recognize the Company’s transparency and legality,” Kim said in a public message to shareholders.

“Samsung BioLogics is a company with very solid financials, its current cash reserve being more than 1 trillion KRW.”

Therefore, he said, it is “unlikely that the issue at hand will impact our corporate values or daily business operations.” 

On Nov. 14, the Financial Services Commission’s auditing arm concluded that Samsung BioLogics had violated accounting rules by deliberately changing the status of its joint venture, Samsung Bioepis, to increase its value and in turn boost BioLogics’ valuation ahead of its market listing in 2016.

Since the ruling, Samsung BioLogics shares have been suspended from the stock market, and the FSC has ordered the Korea Exchange, the local bourse operator, to review whether the company should be delisted.

The FSC also imposed an 8 billion won ($7 million) penalty on the biopharmaceutical company; asked the prosecution to launch a criminal probe; and recommended that the company’s CEO, Kim Tae-han, and CFO be dismissed from their posts.

Samsung BioLogics has denied any wrongdoing, and formally filed an administrative suit Tuesday asking for a court injunction to nullify the penalties imposed by the financial regulator.

“We deeply regret the findings of the SFC as we are confident that our accounting treatment has been proper under the K-IFRS,” Kim said, referring to the Korean version of the International Financial Reporting Standards and explaining the legal action it has taken in response. “Through these lawsuits, the Company aims to have the legality of its accounting treatment recognized.”

In addition, Kim said, the company is cooperating with the Korea Exchange review so that trading can resume as soon as possible.

The FSC’s regulatory review centered on questions about Samsung BioLogics’ sudden profit in 2015 after sustaining years of losses.

Samsung BioLogics reported a net profit of 1.9 trillion won that year after changing the method used to calculate the value of Samsung Bioepis, which was formed as a joint venture with the US-based Biogen, by categorizing it as an affiliate instead of a subsidiary.

Samsung BioLogics has claimed that its accounting practices were in line with international accounting standards.

Allegations against the Samsung-owned drugmaker were first raised in December 2016 by Rep. Sim Sang-jeung of the Justice Party and progressive civic group People’s Solidarity for Participatory Democracy.

They have argued that Samsung BioLogics inflated its market value in line with the controversial merger between Samsung Electronics and Cheil Industries that took place earlier in 2015, which was widely viewed as a step to help Samsung Group’s heir apparent, Lee Jae-yong, cement his control over the conglomerate.

Established in 2011, Samsung BioLogics stands at the center of the tech conglomerate’s push to secure the lead in new, promising future growth industries.

In August, Samsung announced plans to invest $22 billion in the biotechnology business and other areas such as artificial intelligence and fifth-generation mobile technology.

By Sohn Ji-young (jys@heraldcorp.com)