|Celltrion's logo / Courtesy of Celltrion|
By Anna J. Park
The Financial Services Commission (FSC) is now looking at the results of a nearly three-year investigation by the Financial Supervisory Service (FSS) into alleged accounting fraud by Celltrion.
The FSS began investigating the biopharmaceutical company in 2019 after three-term ruling Democratic Party of Korea (DPK) lawmaker Lee Hack-young alleged, during a National Assembly annual audit in October 2018, that it had been cooking its books.
As the probe has now been completed, the FSS handed its findings to the FSC, the country's top financial policy regulator and its supervisory agency, for further deliberation.
Although there is a possibility that the FSC may overturn the FSS's inspection results, investors thought this unlikely and went on a selling spree. As a result, the share prices of Celltrion, Celltrion Healthcare and Celltrion Pharm all plunged during Tuesday's trading ― logging falls of 6 percent, 5.58 percent and 5.9 percent, respectively.
Officials at both the FSC and FSS declined to comment on the investigation, saying that they were prohibited from doing so as the matter was still ongoing.
"Since details of the investigation's progress could directly and immediately influence the stock markets, it is prohibited for officials to make any comments on an investigation that is currently in progress," an FSS official told The Korea Times.
According to the DPK's Lee, Celltrion Healthcare sold its exclusive distribution rights for the local market to Celltrion for 21.8 billion won ($18.3 million) during the second quarter of 2018. Celltrion Healthcare logged the item as "ordinary revenue" in their accounting books, which allowed it to record a net operating profit during the quarter. The lawmaker pointed out that since the sale of the rights was not repetitive in nature, it should've been logged as "non-operating income."
According to reports and sources, the FSS has verified that Celltrion Healthcare and Celltrion Pharm committed other fraudulent accounting practices. The two allegedly reported lower losses than those incurred by deliberately altering the losses incurred from inventory in their accounting records. This is considered a clear violation of accounting rules.
Changes in accounting standards are one of the factors why the preliminary investigation by the FSS took almost three years, much longer than the usual inspection period of about one year, according to officials. Because the matter itself was complicated to verify, the FSC supervisory committee could also take some time to reach a conclusion.
Because of the ongoing investigation, a proposed merger of the three related companies ― Celltrion, Celltrion Healthcare and Celltrion Pharm ― will be delayed further. Initially, the companies aimed to complete the process by the end of the year.