South Korean regulator says Samsung BioLogics violated accounting rules

Ref: Financial Services Commission;FOX Business;Samsung BioLogics;Yonhap News;Financial Times;Yahoo!Finance;The Wall Street Journal

South Korea's Securities and Futures Commission (SFC) announced Thursday that Samsung BioLogics will be reported to prosecutors for violating accounting standards after "intentionally omitting" information from a public disclosure related to its joint venture with Biogen. The regulator is seeking the dismissal of executives in charge of Samsung BioLogics and the designation of external auditors for three years.  

The SFC initially revealed in May that it was investigating Samsung BioLogics over suspected accounting fraud. The news came after South Korea's Financial Supervisory Service completed its investigation of the drugmaker's accounting practices in April.  

The SFC concluded that Samsung BioLogics failed to disclose an agreement with Biogen, which gave the US company a call option to increase its stake in their joint venture Samsung Bioepis, violating accounting rules in 2015. The accounting change relates to the way Samsung BioLogics valued its 94.6 per cent stake in Samsung Bioepis, which it switched from book to market value. Last month, Biogen exercised its option to increase its stake in Samsung Bioepis from 5.4 percent to about 49.9 percent, in a payment to Samsung BioLogics of approximately $700 million.  

The SFC indicated that following the accounting change, Samsung BioLogics posted a profit of 1.9 trillion South Korean won ($1.7 billion) ahead of its $2-billion initial public offering in 2016 having recorded several years of losses. SFC vice chairman Kim Yongbeom noted "the company clearly violated accounting rules and it was intentional when it did not disclose the information in regulatory filing."  

In response to the news, Samsung BioLogics noted that it "has provided full cooperation" during the SFC's audit, adding that its "accounting treatments were conducted in accordance with the International Financial Reporting Standards." The company, whose shares were down nearly 10 percent on the news, added that it "will put forth its best efforts to prove the legality of its actions…and will even consider filing an administrative lawsuit."