Repeated Accusations... Kyobo Life Insurance In 'Put Option Controversy' Says "We Will Go To The End"

[Asia Economy Reporter Oh Hyung-gil] Kyobo Life Insurance's repeated legal actions against Deloitte Anjin LLC, accusing the firm of excessively inflating its stock price, have brought a new dimension to the 'put option (the right to sell shares at a specific price) conflict' between Kyobo Life Insurance Chairman Shin Chang-jae and financial investors (FIs).

On the 9th, Kyobo Life Insurance, through its legal representative, law firm Jiwoo, filed a criminal complaint with the prosecution against Deloitte Anjin LLC for violating the Certified Public Accountant Act. This follows a complaint filed with the U.S. Public Company Accounting Oversight Board (PCAOB) on the 31st of last month, marking the company's move to take legal action domestically as well.

In the prosecution complaint, Kyobo Life Insurance alleged that Deloitte Anjin LLC violated Article 15 (Duty of Fairness and Faithfulness) and Article 22 (Prohibition of Name Lending, etc.) of the Certified Public Accountant Act.

Kyobo Life Insurance claims that Deloitte Anjin LLC set the stock price of Kyobo Life Insurance excessively high and made this decision siding with the FIs.

The company stated, "Unlike typical corporate valuations, the fair market value (FMV) assessment of put options, which can be enforced by court order, should be calculated based on the exercise date. However, Deloitte Anjin LLC violated this fundamental principle by using the peer group stock prices from the one-year period prior to June of the same year, despite the FI's put option exercise date being October 23, 2018."

They further explained, "The legal representative believes there is a possibility that the evaluation date was deliberately moved forward to increase the exercise price."

This is similar to the grounds for the complaint filed with the PCAOB against Deloitte Anjin LLC. At that time, the firm was accused of violating evaluation standards during the FMV calculation process, which triggered prolonged shareholder disputes and caused tangible and intangible damage to the company.

In other words, Kyobo Life Insurance's position is that Deloitte Anjin LLC intentionally calculated the fair value of Kyobo Life Insurance's shares based on the average stock value of similar companies from June 2017 to June 2018, instead of valuing the company as of the FI's put option exercise date of October 23, 2018.

Kyobo Life Insurance emphasized, "We believe Deloitte Anjin LLC flagrantly violated the Certified Public Accountant Act and the ethical standards of the Korean Institute of Certified Public Accountants while preparing the corporate valuation report at the request of some FIs."

With two rounds of complaints filed against the accounting firm, the ongoing arbitration lawsuit between Chairman Shin and the FIs is expanding into litigation involving the accounting firm. The financial sector widely expects a prolonged battle through lawsuits against the accounting firm following the prosecution's investigation.

There is growing interest in how this will affect the arbitration outcome. The International Chamber of Commerce (ICC) hearing between Chairman Shin and the FIs is scheduled for September.

If the ruling favors the FIs in this hearing, concerns are raised that Kyobo Life Insurance's governance could be destabilized if Chairman Shin fails to secure funds to repurchase FI shares. Kyobo Life Insurance has previously disclosed that changes in governance could occur.

A financial industry insider said, "The successive complaints reflect Kyobo Life Insurance's determination to use all available measures. However, intense negotiations may continue until the lawsuit results are out."

This content was produced with the assistance of AI translation services.