South Korea’s financial regulator is likely to decide the fate of Samsung BioLogics on May 23 at the earliest over allegations that the company had doctored its accounting books.

The nation’s top financial regulator, the Financial Services Commission, said it would review the case by holding an in-house oversight panel next Thursday. If a breach of accounting regulations is found, the Securities and Futures Commission, a legal entity within the FSC, will decide the level of penalty in a regular weekly meeting the following week or later.

The FSC had been briefed Sunday by the nation’s financial watchdog, which has been probing the case.

Samsung BioLogics, South Korea’s largest contract manufacturing company, is suspected of violating accounting standards. The Financial Supervisory Service has pointed out a change in accounting approach from a consolidation to equity method in the financial year of 2015. That meant Samsung BioLogics’ shares in its joint venture subsidiary Samsung Bioepis were evaluated at market value, instead of book value.

As a result, the value of its 300 billion won ($278.6 million) investment into 91.2 percent of Samsung Bioepis jumped to some 4.8 trillion won, officials said. Also, Samsung BioLogics saw a drastic turnaround in 2015, with some 1.9 trillion won in yearly net profit after staying in the red since it was founded in 2011, they added.

The FSS on May 1 sent a preliminary notification to Samsung BioLogics after concluding a yearlong probe at the request of the National Assembly to review its financial statements from 2012 to 2015. The company denied the allegation in an emergency press conference last week.

The decision to change the accounting system was made on the back of advice from multiple accounting firms that all gave their unreserved support, company officials said. It was designed to address the heightened possibility of a call option exercise by US pharmaceutical firm Biogen, which is the second-largest shareholder of Samsung Bioepis with a 5.4 percent stake.

Multiple news outlet reported the FSS called on the FSC to issue a fine of up to 6 billion won to Samsung BioLogics, which would be the largest in history, as well as to request for the dismissal of its chief executive. The financial watchdogs said Sunday that such information was “unconfirmed.”

If the commission confirms the case to be accounting fraud, it is also expected to add fuel to the growing speculation of misdeeds during a merger deal between Samsung C&T and Cheil Industries, which was widely seen as a step for Samsung Electronics Vice Chairman Lee Jae-yong to expand his grip over the Samsung empire. 

Samsung BioLogics is the world’s largest pharmaceutical contract manufacturing organization, with production capacity that amounts to 360,000 liters per year. It is also a maker of biosimilars from living cells.

Samsung BioLogics, trading on the top-tier Kospi, plummeted 29 percent as of Friday compared to a week prior. For four trading days from Monday to Friday, its market cap worth 9.7 trillion won evaporated. The stock markets closed on May 1 and Monday for observance and a designated national holiday, respectively.

Other biopharma companies suffered similar drops throughout last week. Kospi-listed Celltrion tanked 9.4 percent over the cited period. The second-tier Kosdaq’s pharmaceutical index fell 5.2 percent.

By Son Ji-hyoung 
(consnow@heraldcorp.com)