Kyobo Life 'Put Option' Controversy, Related Parties Acquitted in First Trial... Kyobo Expects Appeal (Summary)

[Asia Economy Reporter Changhwan Lee] Deloitte Anjin Accounting Corporation and financial investor (FI) officials who were prosecuted on charges of applying a valuation date favorable to investors during Kyobo Life Insurance’s valuation process were acquitted in the first trial. Kyobo Life Insurance stated that it hopes the prosecution will appeal and the court will reconsider the case.

The Criminal Division 22 of the Seoul Central District Court (Presiding Judge Cheolhan Yang) acquitted all Affinity Consortium officials and Anjin Accounting Corporation accountants indicted for violating the Certified Public Accountant Act at the sentencing hearing held on the 10th.

The court said, "It is difficult to acknowledge that Anjin’s certified public accountants did not exercise professional judgment during the valuation process and that the report was prepared by FI-related parties," adding, "It is also difficult to see that the accountants prepared false reports allowing the FIs to obtain unfair financial gains, so all three certified public accountants and the other two FI-related parties are acquitted."

Kyobo Life Insurance filed a complaint with the prosecution in April last year, alleging that Deloitte Anjin intentionally overvalued the fair market value (FMV) corresponding to the put option price (the right to sell at a specific price) held by its FI, the Affinity Consortium, violating the standards.

The Affinity Consortium signed a shareholders’ agreement (SHA) with Kyobo Life’s largest shareholder, Chairman Shin Chang-jae, in September 2012. The agreement stipulated that the FIs would purchase 24% of Kyobo Life shares held by Daewoo International at 245,000 KRW per share, recover their investment through an initial public offering (IPO) within three years, and exercise the put option if the IPO failed.

As the IPO was repeatedly delayed, the financial investors exercised the put option against Chairman Shin in October 2018 at 410,000 KRW per share.

In the complaint submitted to the prosecution, Kyobo Life claimed that although the put option exercise date was October 23, 2018, Deloitte Anjin calculated the fair market value based on June 30, 2018, intentionally overestimating the put option exercise price.

At the previous sentencing hearing, the prosecution requested prison sentences ranging from one year to one year and six months for the defendants. However, the first trial court ruled that there was no violation of the Certified Public Accountant Act by the defendants, contrary to the prosecution’s judgment, and acquitted them.

The FI side argued, "Chairman Shin cited the illegality of Anjin’s valuation report as the reason for not fulfilling the put option obligation," adding, "In the second arbitration by the International Chamber of Commerce (ICC), expected to be filed in February, it will be difficult for Chairman Shin to avoid criticism that he aggressively attacked the FIs from the beginning to avoid fulfilling the put option obligation."

On the other hand, Kyobo Life Insurance expressed deep regret over the ruling, considering that the prosecution had sought imprisonment and fines for the defendants.

A Kyobo Life Insurance official said, "We expect the prosecution to appeal and that an appropriate judgment will be reached in the appellate court," adding, "Regardless of this ruling, we will successfully complete the IPO, proactively prepare for IFRS17 and K-ICS, and accelerate preparations for a long-term transition to a financial holding company."

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