April 25, 2024

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[THE INVESTOR] Democratic Party lawmaker Park Yong-jin revealed on Nov. 7 a handful of documents that were exchanged between Samsung BioLogics and the control tower of Samsung regarding the contract drug manufacturer’s controversial accounting practices.

The 20-page documents were dealing with several issues relating Samsung BioLogics's financial status and market valuation including a call option held by its US partner Biogen in their joint venture Samsung Bioepis and the 2015 merger between Samsung C&T and Cheil Industries, as well as ways to avoid its capital erosion. 

“I was shocked when I first saw the internal documents because I could ascertain that the myriad problems that have been raised (against Samsung BioLogics) were not suspicions. They were facts,” the lawmaker said during a press conference at the National Assembly. 

The documents were mainly emails dated 2015 between Samsung BioLogics' accounting team and Samsung Group's Future Strategy Office, which was dissolved in 2017.

The lawmaker's remark comes as Samsung BioLogics is waiting a final ruling from the country's financial regulator for allegedly committing fraud by changing its accounting methods for its holdings in Samsung Bioepis, its joint venture with Biogen.With the change, the company reported a big swing to a net profit of 1.9 trillion won for 2015, just before its stock market listing.

Park said Samsung BioLogics acknowledged that Biogen’s exercise of its call option to up its stake in Samsung Bioepis, would be delayed, but claimed that it “became substantially likely” that the US biotech would use the option in order to inflate its earnings.

“While the company was grappling with ways to avoid capital erosion, it found that the call option would give it a reason to change its accounting method which turned the loss making company into a profitable firm,” Park said.

He also said Samsung swindled investors by keeping mum on its auditors’  "lousy reports" that put the valuation of the company at over 8 trillion won while the company valued itself at 3 trillion won.

The reports played a key role in deciding the merger ratio between Samsung C&T and Cheil Industries as the latter was the largest shareholder of Samsung BioLogics at that time.  

According to the documents revealed by Park, the company had a meeting with its accounting firms to prepare for possible negative scenarios due to the valuation gap -- 3 trillion won and 8 trillion won.

Activists and some lawmakers have been claiming that Samsung Electronics Vice Chairman Lee Jae-yong took a filthy profit through the merger.

By Park Han-na (hnpark@heraldcorp.com)