Court: "Former Daewoo Shipbuilding & Marine Engineering CEO Ko Jae-ho and others must pay 85 billion won in damages for accounting fraud"

Koh Jae-ho, former President of Daewoo Shipbuilding & Marine Engineering

[Asia Economy Reporter Kim Daehyun] Former CEO of Daewoo Shipbuilding & Marine Engineering (DSME), Ko Jae-ho, has been ordered to pay hundreds of billions of won in damages related to the "5 trillion won accounting fraud" that caused losses to the company.

According to the legal community on the 7th, the Seoul Central District Court Civil Division 21 (Presiding Judge Kang Minseong) recently ruled partially in favor of the plaintiff in the first trial of the damages lawsuit filed by DSME against Ko and eight others.

Previously, Ko and other DSME executives were investigated for committing accounting fraud amounting to 5 trillion won between 2012 and 2014. The investigation revealed that the financial statements were manipulated by overstating sales, operating profit, and net income.

Ko was sentenced to nine years in prison for conspiring with former Vice President Kim Gapjoong and others to commit accounting fraud in 2013 and 2014. Subsequently, the company filed a lawsuit demanding compensation of approximately 380 billion won for damages, including improperly paid performance bonuses, from Ko, other executives, the accounting firm, and affiliated accountants.

The court recognized the responsibility of Ko, Kim, and four other executives. In particular, it ruled that Ko and Kim are jointly liable to pay about 85 billion won. This accounts for 40% of the total damages of approximately 262.883 billion won caused by accounting fraud, including executive and employee performance bonuses, profit dividends, and fines. Additionally, the court ruled that Kim is separately liable to pay about 20.2 billion won.

However, the court did not recognize the liability of the accounting firm and accountants, judging that DSME executives actively obstructed the audit to prevent the accounting fraud from being detected. The court stated, "DSME did not provide sufficient and appropriate audit evidence to the accounting firm to reasonably assure that the financial statements were not materially misstated," and dismissed all claims against them.

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