Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Kyobo denounces Deloitte Anjin for 'unceasing' fake report allegation
Kyobo Life Insurance headquarters in Seoul / Courtesy of Kyobo Life Insurance
By Lee Min-hyung
By Lee Min-hyung
The prosecution is looking into allegations that Deloitte Anjin engaged in “another” accounting fraud by manipulating a corporate value at the request of a client ― Hong Kong-based Affinity Equity Partners ― after the accounting firm faced similar suspicions involving a contract with Samsung.
The controversy is centered on the ongoing legal fight between Kyobo Life Insurance and its financial investor the Affinity-led consortium. Prosecutors indicted three Deloitte accountants for allegedly colluding with Affinity to distort the insurer's estimated pre-initial public offering (IPO) stock price.
Kyobo argues that such business malpractice between an accounting firm and a client should not be tolerated. Even if the legal dispute continues, the insurer is determined to use all available measures to “reveal the truth” behind what it calls suspicions of insider trading.
According to the prosecution, the accounting firm is suspected of engaging in stock value distortion.
This is not the first time that the company has been mired in such a dispute. Back in 2015, the prosecution indicted accountants at Deloitte Anjin for allegedly preparing distorted reports to justify the 1-to-0.35 share ratio in the merger between Cheil Industries and Samsung C&T.
At that time, the prosecution said Samsung demanded Deloitte Anjin do this if it wanted to keep doing business with Samsung and its affiliates. The accounting firm is suspected of applying a set of unreasonable criteria to meet the demand from Samsung, according to the prosecution.
Kyobo is stepping up its criticism of the questionable relationship between Affinity and Anjin, calling it evident collusion between an accounting firm and its client. Such collusive contracts have been accepted widely in the past under the name of “a business custom,” but this should come to an end, the insurer alleged.
“We expect the court to root out such malpractice that is prevalent across business circles,” a Kyobo spokesman said. “The fundamentals of the capital market will be on shaky ground if the business wrongdoing continues to be tolerated. The fraudulent collusion between an accounting firm and its client should be completely eradicated.”
Earlier, the life insurer accused Anjin of a suspicious evaluation of its corporate value at the request of the Affinity consortium, which is the second-largest shareholder of Kyobo after acquiring a 24.01 percent stake in 2012 for 1.2 trillion won ($970 million).
Kyobo and the financial investors were on good terms until the end of 2015 when Kyobo was scheduled to go public. A put option agreement between the two sides allowed the consortium to exercise the right to withdraw its investment from Kyobo if the insurer failed to be listed according to an agreed timeline.
Kyobo Life Insurance Chairman Shin Chang-jae, left, and Deloitte Anjin CEO Hong Jong-sung / Courtesy of each firm
The legal battle started over their differences on the estimated share price of Kyobo. The investment firm demanded Kyobo Life Insurance Chairman Shin Chang-jae buy back its shares at 409,000 won each, but Shin argued this was “too overpriced.”
The Kyobo leader claimed the share price should be set between 200,000 won and 300,000 won.
With both sides failing to narrow their differences, Kyobo accused the accounting firm of improperly evaluating the price for the benefit of its client.
In 2019, Affinity brought the case to the International Court of Arbitration, which is expected to make a final judgment in the latter half of the year, at the earliest. Affinity insisted that the prosecution's indictment would have little impact on the arbitration process.
Kyobo also expressed discomfort with Affinity for “playing a war of nerves” with the insurer through a continuous set of press releases denouncing it and its chairman.
“The consortium keeps distorting the prosecution document, and seeks to water down the fundamental dispute,” the Kyobo official said. “This is a move disregarding the authority of the prosecution.”
The Affinity consortium argues Kyobo delayed its IPO on purpose so that Shin could maintain his management control, which the insurer said was far from the truth.
Kyobo denied the claim, saying that the delayed listing was because of escalating external uncertainties in the nation's insurance market amid prolonged low interest rates and intensifying competition.