Judgment Order: KRX Loses Entirely to FSC
Significant Differences from Criminal First Trial Ruling
Financial Services Commission to Decide on Appeal Later
Amid the court's ruling to 'cancel' the financial authorities' sanctions related to the intentional accounting fraud by Samsung Biologics in 2018, the Financial Supervisory Service (FSS) stated that "the point that the change in control was ruled not to be a normal accounting treatment is significant."
On the 14th, the Administrative Court of Seoul, Administrative Division 3 (Presiding Judge Choi Su-jin) ruled in favor of Samsung Bio in a lawsuit filed against the Securities and Futures Commission (SFC) under the Financial Services Commission, seeking cancellation of corrective orders. The court stated, "Although some accounting treatments, such as false statements in business reports, are difficult to consider normal and thus constitute grounds for sanctions, since there are also grounds for sanctions that were not recognized, it is appropriate to cancel all sanctions."
The sanctions that the court ruled to cancel were the so-called 'second sanctions' imposed in November 2018. At that time, the SFC decided on sanctions including recommending the dismissal of the CEO and executives, imposing a fine of 8 billion KRW, and corrective orders (restatement of financial statements), judging that Samsung Biologics' change in accounting treatment related to control over Samsung Bioepis in 2015 was intentional accounting fraud.
The financial supervisory authorities viewed that the company committed accounting fraud worth approximately 4.5 trillion KRW by changing Samsung Bioepis, established as a joint venture with the US company Biogen in 2012, from a subsidiary to an associate company and arbitrarily changing the value of its shares in the 2015 fiscal year from the book value (290 billion KRW) to the market value (4.8 trillion KRW).
After the court ruling, the FSS distributed a press reference material, stating, "We respect the court's judgment," but also noted, "Although the ruling orders a complete loss for the plaintiff, the fact that the court found no procedural defects in the sanctions and, unlike the first criminal trial, ruled that the 2015 change in control was not a normal accounting treatment is significant." In the first criminal trial, it was ruled that the change in control was justified because Biogen's call option became a substantive right as the business success potential of Samsung Bioepis increased in 2015.
The FSS pointed out, "Both sides agree that the company had sole control over Samsung Bioepis during the 2012-2014 period," but added, "Regarding the 2015 change in control, the criminal case viewed it as joint control and considered it a legitimate accounting treatment, whereas this ruling stated that there was no special event to warrant accounting for loss of control and that it was merely a means to avoid capital impairment, thus not a normal accounting treatment."
This ruling is interpreted as an extension of the Seoul Central District Court's acquittal of Samsung Electronics Vice Chairman Lee Jae-yong on charges of accounting fraud and false disclosure in February. The FSS also said, "We plan to analyze the ruling in detail once the judgment is obtained, but since the criminal and administrative lawsuits share common issues regarding violations of accounting standards, this ruling is expected to have some impact on the criminal case."
Meanwhile, the FSS plans to review an appeal after obtaining the ruling. The FSS stated, "The decision on whether to appeal will be made by the Financial Services Commission under the guidance of the Ministry of Justice," and added, "After obtaining the ruling, we will analyze the details such as violations of accounting standards and convey our opinion on whether to appeal to the Financial Services Commission."
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