Celltrion may face further review by FSC on alleged accounting fraud

The headquarters of Celltrion located in Songdo, Incheon / Courtesy of Celltrion

By Anna J. Park

It seems that financial regulators have a long way to go before reaching a conclusion on the allegations of fraudulent accounting practices at three Celltrion companies ― Celltrion, Celltrion Healthcare and Celltrion Pharm.

While a Financial Services Commission (FSC) inspection of Celltrion has been underway since last November, it remains uncertain when the top financial regulator's Securities Futures Commission (SFC) ― the deliberation body under the FSC ― will officially start discussing the matter.

Some local media outlets have reported that the SFC is set to deliberate on the long-standing issue sometime around next week, after completing discussions at the FSC's accounting-focused deliberative body.

An FSC official told The Korea Times Thursday that it is legally prohibited to reveal or confirm the SFC's meeting agenda. The SFC holds its meetings twice a month, and the official explained that anything discussed can only be disclosed to the public afterwards.

“The FSC committee, with expertise in accounting and supervision issues, has been discussing the fraudulent accounting allegations against Celltrion for months. Only when the committee reaches a conclusion will it then to be transferred to the SFC for further review and deliberation,” the official explained, adding that convoluted legal complications surrounding the allegations have been one of the reasons for the slow process.

Prior to the current FSC inspection, the Financial Supervisory Service (FSS) had spent nearly three years investigating the accounting fraud allegations at Celltrion. The FSS began investigating the biopharmaceutical company in 2019 after ruling Democratic Party of Korea (DPK) lawmaker Lee Hack-young argued that it had been cooking its books during the National Assembly's annual audit in 2018.

According to the lawmaker, Celltrion Healthcare sold its exclusive distribution rights for the local market to Celltrion for 21.8 billion won ($18 million) in the second quarter of 2018. Celltrion Healthcare logged the item as "ordinary revenue" in its accounting books, which enabled the company to record a net operating profit for that quarter. The lawmaker said that since the sale of the rights was not repetitive in nature, it should have been logged as "non-operating income."

The FSS reached the conclusion that Celltrion Healthcare and Celltrion Pharm had committed other fraudulent accounting practices. The two allegedly had reported lower losses other than those incurred, by deliberately altering the losses incurred from their inventory in their accounting records, which is considered a clear violation of accounting rules.

With the interim conclusion, the FSS handed its findings to the FSC last November for further deliberation.

With the inspections ongoing, the stock prices of the three Celltrion companies have been on a declining trend over the past three months, each losing over 25 percent from November.