Samsung Bioepis soared by eighteen times.
Why would it have committed a possible accounting fraud?
“Some analysts said the accounting shift was made to facilitate the
controversial merger in 2015 between two Samsung group units—Samsung
C&T and Cheil Industries,” the Financial Times reported, referring to the
troubled merger that ignited the ongoing scandals and arrests at Samsung.
“At that time, Samsung group had to buoy the value of BioLogics to
justify the merger ratio,” Park Ju-geun, head of corporate analysis group
CEO Score, speculated to the newspaper. He was referring to the
controversial share value ratio between the two merging companies—Cheil
Industries and Samsung C&T—that Elliott argued undervalued Samsung
C&T and hurt its shareholders. Samsung Electronics and Samsung C&T,
two important companies for exerting family control over Samsung’s cross-
shareholding structure, owned 75 percent in Samsung BioLogics. The
inflated value of Samsung BioLogics could have influenced the
undervaluing of Samsung C&T shares, regulators believed.
The investigation sparked a dramatic share sell-off. In a single day,
Samsung BioLogics lost $6 billion in market value, an enormous amount
for a $30 billion company.
On November 14, 2018, the KFTC suspended trading for Samsung
BioLogics stock. “We concluded that the company violated accounting
standards intentionally in 2015,” the KFTC wrote in a statement. Samsung
denied the accusations of shady bookkeeping and then filed an
administrative suit against the KFTC. Samsung claimed it wanted to show
the court that it used a legitimate accounting standard.
Samsung BioLogics avoided being delisted, and trading resumed almost
a month later. But regulators were not finished with their investigation.
From April to June, eight executives were arrested, accused of destroying
evidence and manipulating accounting data. The court twice rejected an
arrest warrant for one of the suspects, Samsung BioLogics CEO Kim Tae-
han, claiming there was “room for dispute” over his role.
Investigators raided two plants owned by Samsung BioLogics and found
a cache of about twenty computers and notebooks, along with a computer
server, under the floorboards, which they believed were related to the case.
“They [Samsung employees] deleted all computer files and emails that
contained keywords like ‘VIP,’ ‘JY’ and ‘vice chairman,’ ” Yonhap reported.
Prosecutors believed those phrases referred to Vice Chairman Jay Y. Lee.