Daewoo Shipbuilding & Marine Engineering's Compensation for 'Bunsik Accounting Fraud' Greatly Reduced in Second Trial

[Asia Economy Reporter Bae Kyunghwan] The Korea Post Office, an institutional investor of Daewoo Shipbuilding & Marine Engineering (DSME), filed a lawsuit claiming damages due to accounting fraud and won partially, but the compensation amount was significantly reduced compared to the first trial.

According to the legal community on the 3rd, the Seoul High Court Civil Division 16 (Presiding Judges Cha Moon-ho, Jang Jun-ah, Kim Kyung-ae) recently ruled that Daewoo Shipbuilding, former CEO Ko Jae-ho, and former CFO Kim Gap-jung must jointly pay 1.548 billion KRW and delayed damages to the state operating the Korea Post Office. However, up to 514 million KRW of the total compensation amount was ordered to be borne by Anjin Accounting Corporation, which was the external auditor at the time.

Previously, Daewoo Shipbuilding was investigated for committing accounting fraud from 2012 to 2014 and failing to reflect losses in the financial statements. Former CEO Ko was sentenced to nine years in prison. Subsequently, several institutional investors filed damage compensation lawsuits, and the first trial court ordered Daewoo Shipbuilding to pay 11.2 billion KRW to the Korea Post Office.

However, the second trial court, based on securities firm reports and media coverage regarding Daewoo Shipbuilding’s outlook at the time, judged that the stock price decline from August 16, 2013, to before May 4, 2015, was not causally related to the accounting fraud, thereby reducing the compensation amount. The same reasoning was applied in a damage compensation lawsuit filed by 290 individual investors against Daewoo Shipbuilding and others, ordering payment of 13.1 billion KRW, less than the 14.6 billion KRW awarded in the first trial.

Meanwhile, according to the Capital Markets and Financial Investment Business Act, if false statements or omissions are found in business reports or quarterly reports causing losses to holders of the corporation’s securities, those who directed such acts or directors are liable for damages.