STX to Seek Stay of Execution and File Administrative Lawsuit Against Securities and Futures Commission Sanctions

"Accounting Issue of Subsidiary Sold in 2023"
"Excessive Attribution of Responsibility to Subsidiary"

On July 3, STX announced that it would pursue legal action, including filing for a stay of execution and an administrative lawsuit, arguing that the sanctions imposed by the Securities and Futures Commission regarding alleged accounting standard violations involving its subsidiary, STX Marine Service, are unjust.

The Securities and Futures Commission resolved on July 2 to impose sanctions on STX, including a fine, a recommendation for the dismissal of its CEO, and notification to the prosecution. The commission cited STX's failure to reflect provisions for lawsuits related to STX Marine Service's power generation project in Iraq in its financial statements for 2022 and 2023 as the reason for the sanctions.

In response, STX stated that it had already sold STX Marine Service in 2023, and that subsequent accounting decisions were made independently by STX Marine Service. STX explained that it had relied on the subsidiary's financial statements at the time and incorporated them into its consolidated financial statements, but was not aware of the existence of the lawsuits in advance and had not been involved in the accounting treatment.

STX emphasized that it had no motive to violate accounting standards, and not only had it not been informed by the subsidiary about the lawsuits, but the commission's conclusion that STX had intentionally concealed information or instructed the omission of provisions is entirely unfounded.

STX Marine Service, as an unlisted company, stated that it reflected the outcome of the lawsuits in its 2023 financial statements in accordance with the guidance of its external auditor, who did not request any retrospective correction of the accounting treatment.

The overseas lawsuits in question consist of two cases, each worth $10 million. STX Marine Service judged at the time that the probability of winning was high and therefore did not establish provisions. Of these, one case was remanded by the Supreme Court of Iraq in April, with the recovery of funds now expected. The other case, which is based on illegal acts by a subcontractor, is currently undergoing retrial procedures.

Park Sangjun, CEO of STX, stated, "This was a matter of inexperience and judgment by an unlisted subsidiary, and there was absolutely no concealment of lawsuits or direction regarding accounting." He added, "It is excessive to hold STX, which prepared the consolidated financial statements without knowledge of the lawsuits, equally responsible for the accounting of the subsidiary."

Kim Youngwook, CEO of STX Marine Service, said, "This accounting treatment required a high level of accounting expertise and was carried out according to the auditor's guidance." He added, "It is important to fully consider the circumstances that led to these lawsuits, as well as the fact that the judicial system in Iraq is significantly different from that of Korea, and that the Supreme Court of Iraq's final ruling is favorable to our company."