Samsung Biologics filed a lawsuit requesting the cancellation of the first sanctions related to allegations of accounting fraud from the financial authorities, winning in both the first and second trials, while the government has internally confirmed its intention to appeal. Since this matter is also related to the illegal succession allegations against Lee Jae-yong, the chairman of Samsung Electronics, they plan to receive judgment from the Supreme Court.

Samsung Biologics has been winning all lawsuits related to the accounting fraud allegations. The main lawsuits currently in progress are the administrative lawsuit requesting the cancellation of the first and second sanctions imposed by the Securities and Futures Commission under the Financial Services Commission concerning accounting fraud, as well as the criminal trial related to the illegal succession allegations against the chairman. Following consecutive losses in legal battles, voices have emerged within the financial authorities questioning whether the investigations and sanctions from seven years ago were somewhat excessive.

Lee Jae-yong, the chairman of Samsung Electronics, is leaving the courtroom after being acquitted in the appeal trial regarding the allegations of illegal succession of management rights held at the Seoul High Court in Seocho, Seoul on February 3./Courtesy of News1

According to financial authorities on the 17th, the Securities and Futures Commission has decided to appeal regarding the sanctions cancellation lawsuit filed by Samsung Biologics against the commission. Since the appeal for the administrative lawsuit must be filed within two weeks of receiving the judgment, the appeal is expected to take place within this month.

A high-ranking official from the financial authorities noted, "It is a natural course to appeal the second trial result of the administrative lawsuit against Samsung Biologics," adding, "There is no need to wait for the full two-week appeal period, and we plan to appeal as quickly as possible."

The Securities and Futures Commission, based on the special inspection results of the Financial Supervisory Service in 2018, claimed that Samsung Biologics intentionally inflated its accounting records, issuing the first sanctions, which included a recommendation for the dismissal of the Chief Financial Officer (CFO) and designation of an auditor, and reported to the prosecution. The authorities determined that the company did not disclose its possession of a call option held by U.S. Biogen during the preparation and disclosure of financial statements.

The Securities and Futures Commission later concluded that Samsung Biologics had conducted about 4.5 trillion won worth of accounting fraud, by changing the classification of Samsung Bioepis from a "subsidiary" to an "affiliate," resulting in an overvaluation of 4.8 trillion won. A subsidiary means a company that can control overall management, while an affiliate refers to a company that cannot dominate overall management through joint management. The commission decided on a recommendation for the dismissal of the CEO and executives, a penalty surcharge of 8 billion won, and other corrective measures as part of the second sanctions.

At that time, the allegations of accounting fraud escalated into a controversy over Samsung Group's management succession. The prosecution determined that during the merger of Cheil Industries and Samsung C&T, the value of Cheil Industries, which held shares of Samsung Biologics, was inflated, resulting in a merger that was favorable to Chairman Lee. Currently, the chairman is on trial for illegal succession charges.

However, as Samsung Biologics has continuously won victories in the administrative lawsuits arguing that the commission's sanctions are inappropriate, the atmosphere has shifted. In the first trial of the cancellation lawsuit against the first sanctions in 2020, the verdict was in favor of Samsung Biologics (the plaintiff), and the court upheld this decision in the second trial announced on the 11th of this month. The first trial concerning the cancellation of the second sanctions also resulted in a verdict in favor of the plaintiff last August.

As the administrative court favored Samsung Biologics, the trial concerning illegal succession allegations is also turning in favor of the chairman. He received a not guilty verdict in February of this year for charges related to unfair trading practices, market manipulation, and breach of duty during the second trial. The court concluded that there was no evidence of accounting fraud and deemed the accounting practices as being within a normal range.

Given the current situation, there are criticisms within the financial authorities that the investigations starting in 2018 were somewhat excessive. An official from the financial authorities stated, "At that time, there was considerable debate within the authorities over whether this case could be viewed as accounting fraud," adding, "We will have to wait for the Supreme Court's ruling, but honestly, there is not much expectation for a reversal."