A South Korean court has hit pause on the penalties imposed by the country’s accounting regulator against Samsung BioLogics for the way it handled accounting for a joint venture with Biogen.
The court decided the allegations of the Financial Services Commission (FSC) have yet to be proven and the regulator's actions "could lead to irreparable damage” for the Korean biologics maker, a court official told Reuters.
The company confirmed the ruling to the news service. “The court’s decision is fortunate. We will do our best to prove the legitimacy of the company’s handling of accounting,” a Samsung official said.
Samsung BioLogics, which has denied any wrongdoing, filed an administrative lawsuit against the FSC in November after the regulator slapped Samsung with a number of strict penalties for allegedly violating accounting rules. The agency imposed a $7 million fine, recommended the firing of BioLogics’ chief executive Kim Tae-han and referred the case to criminal prosecutors. It also suspended trading in the company’s stock, but that resumed in December after the exchange ruled that the company’s shares could remain listed while the case played out.
The review centered around a 2015 financial report in which Samsung BioLogics reported that it had swung from years of losses to a sudden profit. That happened after it changed the method by which it valued the JV, Samsung Bioepis. Regulators alleged the change was not only a violation of accounting rules but also an improper method for inflating the company's net profit before going public.
Samsung BioLogics, an affiliate of tech giant Samsung Electronics, has said that the change in valuation method was approved by KPMG Korea, Deloitte Korea and PricewaterhouseCoopers Korea. The FSC also punished those auditors, fining KPMG and barring it from auditing the company for five years, and banning Deloitte from working for the company for three years.
The legal imbroglio has not deterred Biogen, which last summer upped its stake in the JV to 49% with a $700 million investment. Prior to the FSC action, Samsung BioLogics was on a rapid upward trajectory. Its 2017 sales grew by 56% year over year to $420 million, thanks to expanding production volume at its manufacturing facilities. In August, Samsung included its biopharma operations in its plans to invest $22 billion in high-growth business lines.
The matter is now in the hands of prosecutors, which raided the headquarters of Samsung Biologics in December.