Samsung BioLogics said Wednesday that it has filed an administrative suit against South Korea’s financial regulator over its ruling earlier this month that the company had violated accounting regulations by intentionally inflating its profits ahead of its market listing in 2016.

The biopharmaceuticals manufacturer under Samsung Group said that it was also seeking a court injunction to nullify the penalties imposed by the Financial Services Commission, including recommendations to dismiss its chief executive and chief financial officer.

On Nov. 14, the Securities and Futures Commission, the auditing arm of the FSC, concluded that Samsung BioLogics had violated accounting rules by deliberately changing the status of its joint venture, Samsung Bioepis, to increase its value and in turn boost BioLogics’ valuation ahead of its initial public offering. 

Since the ruling, Samsung BioLogics shares have been suspended from the stock market, and the FSC has ordered the Korea Exchange, the local bourse operator, to review whether the company should be delisted.

The FSC also imposed an 8 billion won ($7 million) penalty on the biopharmaceutical company; asked the prosecution to launch a criminal probe; and recommended that the company’s CEO, Kim Tae-han, and CFO be dismissed from their posts.

Samsung BioLogics has denied any wrongdoing and has stated plans to challenge the FSC’s ruling in court, which the company is now formally executing.

“With this administrative suit, we seek to prove the legitimacy of our accounting practices,” Samsung BioLogics said in a statement. “We will fully commit ourselves to this administrative suit while also continuing to focus on growing our business.”

As the suit is designed to challenge the FSC’s administrative penalties, it will not include matters such as the regulator’s request for a prosecutorial probe or the delisting of Samsung BioLogics shares, the firm added.

Korea’s finance regulator arrived at its conclusion after investigating allegations that Samsung BioLogics committed accounting irregularities before its IPO in 2016.

The regulatory review had centered on questions about Samsung BioLogics’ sudden profit in 2015 after sustaining years of losses.

Samsung BioLogics reported net profit of 1.9 trillion won that year after changing the method used to calculate the value of Samsung Bioepis, which was formed as a joint venture with the US-based Biogen, by categorizing it as an affiliate from a subsidiary.

Samsung BioLogics has claimed that the accounting practices used were in line with international accounting standards.

Allegations against the Samsung-owned drugmaker were first raised in December 2016 by Rep. Sim Sang-jeung of the Justice Party and progressive civic group People’s Solidarity for Participatory Democracy.

They have argued that Samsung BioLogics inflated its market value in line with the controversial merger between Samsung Electronics and Cheil Industries that took place earlier in 2015, which was widely viewed as a step to help Samsung Group’s heir apparent, Lee Jae-yong, cement his control over the conglomerate.

Established in 2011, Samsung BioLogics stands at the center of the tech conglomerate’s push to secure a lead in new, promising future growth industries.

In August, Samsung announced plans to invest $22 billion in the biotechnology business and other areas such as artificial intelligence and fifth-generation mobile technology.

By Sohn Ji-young (jys@heraldcorp.com)