Securities and Futures Commission Finds "Gross Negligence" in SK Ecoplant's Accounting Standards Violation

Dismissal Recommended and Six-Month Suspension for Responsible Executive

On September 10, the Securities and Futures Commission under the Financial Services Commission concluded that SK Ecoplant's violation of accounting standards related to its U.S. subsidiary constituted "gross negligence." This is one level lower than the Financial Supervisory Service's original assessment, which viewed the motive for the accounting violation as "intentional."

At its regular meeting that day, the Commission determined that SK Ecoplant had committed "serious negligence" by overstating the revenue of its U.S. subsidiary. As a result, the Commission decided to recommend dismissal and a six-month suspension for the executive in charge.

The Commission pointed out that SK Ecoplant failed to properly review revenue recognition standards for 2022 and 2023, which led to an overstatement of sales at its U.S. fuel cell subsidiary, Company A. This resulted in inflated consolidated net income and consolidated equity in its financial statements.

Initially, the Financial Supervisory Service suggested that SK Ecoplant had attempted to boost its corporate value while preparing for an initial public offering (IPO) as part of its business expansion efforts, and therefore recommended a criminal referral to the prosecution. With the new administration emphasizing a strict stance against accounting fraud, there was considerable attention on the severity of the disciplinary measures in this case.

However, since the Commission concluded that there was no "intentionality," SK Ecoplant avoided a criminal referral to the prosecution. SK Ecoplant stated, "We will carefully review the disciplinary action internally and will continue to strengthen and improve our subsidiary accounting processes." The final decision on the amount of fines for SK Ecoplant and its former CEO will be made later by the Financial Services Commission.

Meanwhile, the Commission also decided to notify the prosecution of the CEO of Ilyang Pharmaceutical and recommended dismissal and a six-month suspension for violating accounting standards. Ilyang Pharmaceutical was found to have inflated its net income and equity by including a company that was not a consolidated subsidiary in its consolidated financial statements.