Securities and Futures Commission Imposes 12-Month Securities Issuance Ban on Sports Seoul for Accounting Violations

The Securities and Futures Commission announced on November 12 that, at its 20th meeting, it resolved to impose measures such as restrictions on securities issuance and the designation of an auditor on Sports Seoul Co., Ltd. for preparing and disclosing financial statements in violation of accounting standards.

It was found that Sports Seoul overstated its equity and other items by failing to properly reflect the embezzlement of funds by the principle of substance over form in its financial statements. The amounts involved, based on separate financial statements, were found to be 2.127 billion won in 2017, 17.695 billion won in 2018, and 20.672 billion won in the first quarter of 2019.

Additionally, the company understated its equity by not adjusting for the effects arising from differences in accounting policies between itself and its affiliates when applying the equity method. With regard to convertible bonds, it was also revealed that the company understated its liabilities and overstated its equity by failing to properly reflect option conditions in fair value measurement.

Accordingly, the Securities and Futures Commission resolved to restrict Sports Seoul from issuing securities for 12 months and to designate an auditor for three years. The commission also recommended the dismissal of the former CEO, former vice president, and former responsible executive, and requested corrective action. Fines for four company officials will be finally determined by the Financial Services Commission at a later date.

At the same time, the Securities and Futures Commission also resolved to impose a two-year restriction on audit work for Anse Accounting Corporation and its certified public accountants, who neglected audit procedures as auditors for Sports Seoul.