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Battle between FSS, Samsung BioLogics exacerbates market jitters

A war of words between the nation’s financial watchdog and Samsung BioLogics intensified Thursday over the legitimacy of authorities disclosing the biotech company’s alleged accounting fraud, further raising already heightened market fears.

The Financial Supervisory Service found itself cornered, with officials at the upper echelon turning a cold shoulder, saying that its decision to reveal the content of a preliminary notice sent to Samsung has caused “market chaos.”

On May 1, the FSS said that it had sent the preliminary notice to Samsung BioLogics that it has completed an audit. It accused the company of breaching accounting rules the next day. Details of the notification, which stated potential penalties, were also released by the FSS on May 6, pushing down the share price of Samsung’s biopharma arm. 

In a rare move, Samsung BioLogics publicly blamed the FSS, known as the police of South Korea’s financial market, for exposing “sensitive information.”

Top government officials including Finance Minister Kim Dong-yeon and Financial Services Commission Chairman Choi Jong-ku, also criticized the FSS for its revelation of Samsung’s alleged accounting misconduct.

The FSS, for its part, defended its actions, saying that disclosing the content of the preliminary notice sent to Samsung BioLogics was carried out within the boundaries of the law. More importantly, it was to protect market interests, it claimed, highlighting that the nature of the company’s alleged error was detrimental. The FSS was without its chief at the time.

“I assume that the FSS released the content of the notification to protect overall investors, as it was viewed that Samsung BioLogics would remain mute and make no particular statement of the company being audited over such suspicions, only benefiting the interest of insiders,” said an official at FSS, requesting anonymity.

“If the authorities didn’t say a word on Samsung BioLogics, it could have also faced criticism of not telling it,” he said.

However, uncertainty over the fate of the company kept sending negative signals to the market.

The market value of Samsung BioLogics nosedived, losing more than 8 trillion won in just four trading days.

Share prices rebounded, but remained under the 400,000 won mark at Thursday’s close, more than 20 percent lower than the closing price of 488,000 won on April 30.

A group of individual investors is preparing separate law suits against the company and accounting firms that reviewed financial records of the firm before its market debut in 2016.

“Retail investors (financially) hurt by controversy over Samsung BioLogics’ alleged accounting fraud are requesting to file a suit,” said a lawyer at Hankyul, a law firm in Seoul.

Institutional investors like National Pension Service may also have lost more than 200 billion won over a week, local reports suggested. The state-run pension fund reportedly holds around 2 million shares, or 3 percent of Samsung BioLogics.

Market experts raised concerns of the possibility of the NPS pulling out its investment from the biotech company, if the suspicion that it lifted the asset price of its affiliate Samsung Bioepis is found to have been “intentional.”

Market fears also dragged bio-related funds down.

According to FnGuide, a local financial data provider, profits of health care-related funds worth more than 700 billion won fell more than 9 percent from a month before, making a clear comparison between the average profit of minus 0.83 percent by local index funds.

Bio-related shares have been skyrocketing, driven by market expectation on development of new drugs. In addition to the controversy over Samsung BioLogics’ alleged accounting fraud, market interest in bio-themed shares appear to have shifted to shares related to North Korea projects, market analysts said.

By Cho Chung-un (
Korea Herald Youtube