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Samsung BioLogics butts heads with FSS over accounting fraud decision

Samsung BioLogics on Wednesday went full force to rebut the Financial Supervisory Service’s tentative decision that the biologics drugmaker had engaged in accounting fraud, which immediately led to a plunge in the firm’s stock price throughout the day.

In an emergency press conference in Seoul in the afternoon, Samsung BioLogics contended that it had received approval from the FSS along with three major accounting firms on changing its accounting method to International Financial Reporting Standards in the fiscal year of 2015.

It added, it would file administrative litigation against the government if its appeal does not go through at the Financial Services Commission.

“We had received approval from the FSS, the Korean Institute of Certified Public Accountants, three major accounting firms alongside consultation from global consulting firms ahead of factoring in Bioepis as an affiliate (rather than a subsidiary),” said Shim Byung-hwa, vice president of Samsung BioLogics.

The government had authorized listings in 2016, along with three major accounting firms -- Samil PricewaterhouseCoopers, Samjeong KPMG, Deloitte Anjin -- and five global consulting firms -- Goldman Sachs, Citi Group Global Market Securities, JP Morgan, Credit Suisse, and NH Investment & Securities -- that approved the company’s moves that the switch is not problematic, the company said.

Samsung Bioepis is a joint venture between Samsung BioLogics and US-based pharmaceutical company Biogen. As a major shareholder, Samsung BioLogics owns 91.2 percent stake, while Biogen holds 5.4 percent.

Samsung BioLogics‘ Senior Vice President Kim Dong-joong (center) explains that the company had not engaged in accounting fraud during an emergency press conference held in northern Seoul on Wednesday. (Yonhap)
Samsung BioLogics‘ Senior Vice President Kim Dong-joong (center) explains that the company had not engaged in accounting fraud during an emergency press conference held in northern Seoul on Wednesday. (Yonhap)

“It is extremely complicated to go public in Korea and the government looks thoroughly into the company based on strict standards. We sought advice and approval from all angles. Applying it (International Financial Reporting Standards) was not based on our independent judgment,” said Kim Dong-joong, the company’s senior vice president.

After a yearlong inspection into Samsung BioLogics, the FSS on Tuesday made a tentative conclusion that the company had overstated its net profit in 2015 by applying International Financial Reporting Standards to hike up its valuation ahead of its public listing in November 2016.

The FSS believes that accounting standards were violated when the company calculated the value of Samsung Bioepis based on market value rather than book value in 2015. This gave the boost Samsung BioLogics in recording a 1.9 trillion won surplus, marking its first surplus since founding in 2011.

Due to the change in accounting method, the value of Samsung Bioepis’ shares owned by Samsung BioLogics rose to 4.8 trillion won ($4.4 billion). Without the change, the figure would have remained at some 300 billion won, according to the FSS.

In 2015, civic group People’s Solidarity for Participatory Democracy argued Samsung BioLogics would have recorded a 214.3 billion won net loss for the fiscal year of 2015 if IFRS weren’t applied.

Samsung BioLogics is the sixth-largest company on the local bourse with market value of 32.2 trillion won.

Samsung BioLogics emphasized that it had changed the status of Samsung Bioepis to an affiliate in 2015 in accordance with the IFRS, as it moved to prevent US’ Biogen from exercising a call option, following the authorization of Samsung Bioepis’ new drug in Europe in 2015.

The call option allows the US-based company to own up to 49.9 percent stake in Samsung Bioepis by purchasing shares owned by Samsung BioLogics.

Critics and the government, however, raised doubts of the drug maker’s intentions as Biogen had rated the value of its call option at zero, and that the approval of a new drug is not a key variable in deciding whether a company remains a subsidiary or affiliate.

Samsung BioLogics argued that “Biogen had sent a letter saying that it would exercise its call option in the second half of 2015, when we were preparing to list Bioepis on the Nasdaq. Biogen had mentioned this again during earnings release for the first quarter of this year.”

Samsung BioLogics closed the trading day at 404,000 won per share, down 17.21 percent compared to the previous day on the local stock market.

By Kim Bo-gyung (