Stern punishment of violators needed as a warning to others
Samsung BioLogics intentionally violated Korea's accounting rules before its initial public offering in 2016, the Financial Services Commission (FSC) announced Wednesday.
Immediately after the announcement, the Korea Exchange halted trading of the company's shares, saying it will examine whether to delist the biopharmaceutical unit of Samsung Group.
The regulators' decision put an end to the 20-month-long controversy over the accounting fraud. It will leave a huge blow, however, not just to the company through possible class-action suits and other moves by shareholders, but also Samsung Group and the entire local bourse.
The FSC focused its investigation on questions about Samsung BioLogics' sudden turnaround to a profit of 1.9 trillion won ($1.68 billion) in 2015 after years of losses. Riding on the abruptly "improved" performance, the company went public the following year. The regulator concluded there was intentional window-dressing in that process.
At stake is how to punish lawbreakers sternly while minimizing the damage to innocent market participants. Damages to shareholders have already become a reality because of the halted stock trading. The number of Samsung BioLogics' minority stockholders is more than 80,000. In addition to losses, their investments are now locked up because of the suspended trading. It will be surprising is there is not a wave of class action lawsuits by investors.
The parent Samsung Group is also at bay. Civic groups suspect the accounting breach at Samsung BioLogics may have helped the controversial merger between Samsung C&T and Cheil Industries in 2015. Activists argue Samsung BioLogics might have inflated its profit to raise its value for the benefit of Samsung Group's heir apparent Lee Jae-yong, who held a major stake in Cheil Industries at the time.
The regulatory move may likely affect the Supreme Court's upcoming ruling on Lee's alleged involvement in the massive corruption scandal involving disgraced former President Park Geun-hye.
The prosecution ought to thoroughly investigate the company as well as accounting firms involved and bring any irregularities to light. The case should serve as an opportunity to promote awareness about accounting fraud as a serious crime, prevent the recurrence of inflicting losses on innocent investors, and restore confidence in the local financial market.
Samsung BioLogics intentionally violated Korea's accounting rules before its initial public offering in 2016, the Financial Services Commission (FSC) announced Wednesday.
Immediately after the announcement, the Korea Exchange halted trading of the company's shares, saying it will examine whether to delist the biopharmaceutical unit of Samsung Group.
The regulators' decision put an end to the 20-month-long controversy over the accounting fraud. It will leave a huge blow, however, not just to the company through possible class-action suits and other moves by shareholders, but also Samsung Group and the entire local bourse.
The FSC focused its investigation on questions about Samsung BioLogics' sudden turnaround to a profit of 1.9 trillion won ($1.68 billion) in 2015 after years of losses. Riding on the abruptly "improved" performance, the company went public the following year. The regulator concluded there was intentional window-dressing in that process.
At stake is how to punish lawbreakers sternly while minimizing the damage to innocent market participants. Damages to shareholders have already become a reality because of the halted stock trading. The number of Samsung BioLogics' minority stockholders is more than 80,000. In addition to losses, their investments are now locked up because of the suspended trading. It will be surprising is there is not a wave of class action lawsuits by investors.
The parent Samsung Group is also at bay. Civic groups suspect the accounting breach at Samsung BioLogics may have helped the controversial merger between Samsung C&T and Cheil Industries in 2015. Activists argue Samsung BioLogics might have inflated its profit to raise its value for the benefit of Samsung Group's heir apparent Lee Jae-yong, who held a major stake in Cheil Industries at the time.
The regulatory move may likely affect the Supreme Court's upcoming ruling on Lee's alleged involvement in the massive corruption scandal involving disgraced former President Park Geun-hye.
The prosecution ought to thoroughly investigate the company as well as accounting firms involved and bring any irregularities to light. The case should serve as an opportunity to promote awareness about accounting fraud as a serious crime, prevent the recurrence of inflicting losses on innocent investors, and restore confidence in the local financial market.
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