Shares of Samsung BioLogics fell 4 percent as officials from Samsung BioLogics and the Financial Services Commission (FSC) met Thursday to review BioLogics’ alleged window dressing.
Shares of Samsung Biologics fell 3.86 percent from the day prior on the KOSPI to stand at 398,000 won per share at closing.
Prices of its stocks rose for two consecutive days starting Tuesday and began falling Thursday ahead of the review meeting where both the FSC and Samsung BioLogics would clash over the charges of alleged accounting irregularities.
At the center of the debate lies the question of whether Samsung BioLogics had inflated the value of its subsidiary Samsung Bioepis in 2015 when Samsung was considering its initial public offering on the NASDAQ.
Back then, the U.S. biotechnology firm Biogen had the opportunity to exercise a call option that would increase its holdings in Bioepis to a 49.9 percent stake. At the time, BioLogics held a majority 91.2 percent stake in Bioepis, and Biogen claimed the remaining 8.8 percent.
Samsung BioLogics – expecting Biogen to exercise the call option – went on to list Bioepis as an affiliate instead of a subsidiary. Affiliates refer to companies where the parent only holds a minority stake whereas subsidiaries are companies whose parent is a majority shareholder.
BioLogics then switched over to reflecting Bioepis at fair market value instead of book value, swinging its net losses to a net profit of 1.9 trillion won ($1.77 billion) right before the IPO on the NASDAQ.
The criticism of accounting fraud levied by Financial Supervisory Service (FSS) against BioLogics is in part due to how the firm turned a net profit of 1.9 trillion won in 2015 considering Bioepis had reported losses for four consecutive years.
The FSS also argued that BioLogics should have listed Bioepis as an affiliate when it entered into a call option contract with Biogen in 2012 or after Biogen exercised its call option considering the call option contract ends in June.
Critics have pointed out that BioLogics lacked transparency in the process and misled investors.
Samsung BioLogics said that it would actively face the high-level officials of the FSC Thursday to clarify the controversy surrounding the allegations of window dressing. Earlier this month, officials of BioLogics said it had not committed any accounting irregularities.
“Our company did not violate any accounting regulations as it applied the International Financial Reporting Standards (IFRS) after consulting with outside experts,” a Samsung executive said.
“To classify as accounting fraud, we would have had to reap benefits from the accounting violations, but we did not,” added Shim Byung-hwa, Samsung BioLogics business innovation team leader.