Samsung BioLogics stock listing, CEO in jeopardy over accounting fraud

Samsung BioLogics South Korea
South Korea's stock watchdog has suspended trading of Samsung BioLogics as the Korea Exchange decides whether to delist it permanently. (Samsung BioLogics)

South Korean stock regulators have ruled that Samsung BioLogics intentionally violated accounting rules to inflate its value tied to its Biogen-partnered affiliate Samsung Bioepis before going public in 2016.

Based on that, the country’s Securities and Futures Commission (SFC) has halted trading of the company on Wednesday, fined it 8 billion Korean won ($7.1 million), recommended dismissal of its chief executive Kim Tae-han and referred the case to prosecutors.

To make it worse, a review is underway that could eventually end in enforced delisting, which could be a serious blow to the fast-growing contract biologics manufacturer and to its parent Samsung Group.

In a Wednesday statement, Samsung BioLogics defended its practice, saying it followed related guidelines and that it will file an administrative lawsuit.

“[T]he SFC’s announcement today is very unfortunate as it is our firm belief that Samsung BioLogics has not breached any accounting rules at all,” the company said.

RELATED: Samsung BioLogics to face criminal probe over accounting violation for biosims JV

The accusation was officially made in May when the country’s Financial Supervisory Service (FSS) cited the suspected breach in a preliminary notice. Later in July, the SFC said Samsung failed to disclose a deal that allowed partner Biogen to increase its stake in the Samsung Bioepis biosimilar JV to one share shy of 50%. Samsung said it changed its accounting method because of the call option, though the SFC at that time didn’t say whether that practice as noted by FSS was illegal.

After changing its calculation method in its 2015 books, the company’s net profit skyrocketed to 1.9 trillion won ($1.68 billion) from a roughly 28 billion won loss in 2014, according to lawmakers quoted by Reuters.

Samsung noted that when it filed the 2015 books in 2016, both the Korean Institute of Certified Public Accountants and the FSS concluded that there were no problems in the accounting treatment..

RELATED: Samsung commits billions of dollars to building its biologics business

Benefiting from the booming biologics market, Samsung BioLogics has posted fast growth. Its 2017 revenue jumped 56% to about $420 million on the back of ambitious expansions. It also became part of the Samsung Group’s planned $22 billion investment, alongside other next-generation technologies such as artificial intelligence and 5G.

“For biopharmaceuticals, Samsung has seen strong growth from both its contract manufacturing and biosimilar businesses. It will continue to invest heavily in the businesses, including developing and manufacturing biosimilars to combat chronic and difficult-to-cure diseases,” the South Korean conglomerate said in August.

However the accounting allegations have recently cost its shares dearly. Its stock price has dropped by a third since last April, from 500,000 won to 334,500 won before the trading suspension.

Meanwhile, Samsung Biologics’ auditors are also being punished. Samjong KPMG was fined 170 million won and banned from auditing the company over the next five years, while Deloitte Anjin was banned from auditing the firm for three years.