Kyobo Life Put Option Accounting Firm Acquitted in First Trial... Red Flag for IPO

Legal Battle Expected to Continue, Likely to Burden Kyobo Life's Listing Review

Shin Chang-jae, Chairman of Kyobo Life Insurance

[Asia Economy Reporter Changhwan Lee] The financial investors (FIs) and accounting firm employees who were indicted for inflating the value of the put option (the right to sell at a specific price) related to Shin Chang-jae, chairman of Kyobo Life Insurance, were acquitted in the first trial.

The court found it difficult to conclude that the accounting firm gave a favorable valuation to the FI side during the valuation process of Kyobo Life Insurance. Given the likelihood of prolonged legal disputes, the ongoing initial public offering (IPO) efforts by Kyobo Life Insurance are expected to face setbacks.

The Criminal Division 22 of the Seoul Central District Court (Presiding Judge Yang Cheol-han) delivered a verdict on the 10th, acquitting all private equity fund Affinity Consortium officials and accountants from Deloitte Anjin Accounting Firm who were charged with violating the Certified Public Accountant Act.

The court stated, "It is difficult to recognize that the certified public accountants of Anjin prepared the report under the influence of FI representatives without exercising professional judgment during the valuation process," and added, "It is also hard to see that the accountants prepared false reports to allow the FIs to gain unfair financial benefits. Therefore, all three certified public accountants and the other two FI representatives are acquitted."

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

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

However, Kyobo Life Insurance accused Deloitte Anjin of intentionally inflating the fair market value (FMV) corresponding to the put option price held by the FI Affinity Consortium, violating standards, and filed a complaint with the prosecution in April last year.

In the complaint submitted to the prosecution, Kyobo Life Insurance argued that although the put option exercise date was October 23, 2018, Deloitte Anjin calculated the FMV based on June 30, 2018, thereby deliberately overestimating the put option exercise price.

Accordingly, in the previous sentencing hearing, the prosecution sought 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.

First Trial Verdict Unfavorable to Kyobo Life Insurance, IPO Faces Red Light

Following the first trial verdict, it is expected to be difficult for Kyobo Life Insurance to proceed with its planned listing in the first half of this year. The Korea Exchange stated that it is difficult to disclose the status of the preliminary review for Kyobo Life Insurance's listing as it is currently under review.

However, the securities industry notes that according to Korea Exchange listing regulations, there should be no disputes such as lawsuits that could significantly affect company management. Therefore, if the put option issue is not resolved, listing within this year may be difficult. Previously, the Korea Exchange extended the preliminary review for Kyobo Life Insurance's KOSPI listing due to shareholder disputes.

Nonetheless, Kyobo Life Insurance has clearly stated that it plans to proceed with the IPO without disruption, separate from the put option lawsuit.

A Kyobo Life Insurance official said, "Although the prosecutor's legal arguments were accepted in this ruling, we regret the acquittal," and added, "If the insufficient parts are supplemented through an appeal, an appropriate judgment will be reached in the appellate court."

He continued, "This ruling does not validate the put option amount calculated by Anjin Accounting Firm, nor does it mean that Kyobo Life Insurance's IPO efforts have failed," emphasizing, "Regardless of this ruling, we will successfully complete the IPO."

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