Samsung Unit Afoul Of Accounting Law, Regulator Says

South Korean financial regulators said a unit of Samsung, Samsung BioLogics, intentionally breached corporate accounting rules, Reuters reported Thursday (July 12).

The nation’s Financial Services Commission (FSC) has referred the case to prosecutors, reports said, after finding that the contract drug manufacturing unit violated accounting regulations in regards to its joint venture with Biogen. The joint venture, Samsung Bioepis, was not disclosed to the FSC, reports said.

“It’s a serious violation of accounting standards, and the committee ruled that [Samsung] knowingly and intentionally decided not to disclose it,” the FSC said in a statement.

Biogen, based in the U.S., reportedly had the option to increase its stake in the joint venture. In response, Samsung BioLogics said the decision is “very regrettable” and that it would pursue “all possible legal measures, including an administrative lawsuit,” Reuters said.

“We have legally implemented all accounting procedures,” the company stated.

Reports said Samjong KPMG, which audits Samsung, will not be allowed to audit the BioLogics unit for four years, according to regulators, which have filed a complaint with prosecutors against BioLogics, its chief executive and an external accountant. The parties will be further investigated.

Regulators had already been watching the Samsung unit and are still probing whether accounting rules were violated when Samsung switched to valuing its Biopeis stake at fair market value instead of book value, according to reports. That move enabled BioLogics to report a profit shortly before its initial public offering (IPO) two years ago, which raised $2 billion.

Earlier this year, BioLogics threatened to file a lawsuit after South Korea’s Financial Supervisory Service (FSS) issued a preliminary notice of possible action in response to suspicions that the company may have inflated its profits before the IPO. That notice led to a $6 billion market value loss.

The company’s Vice President Byunghwa Shim said in a statement at the time,”If a decision is made that we cannot accept, we plan to file an administrative lawsuit.”