 |
| Photo=Yonhap news |
[Alpha Biz= Paul Lee] SK Ecoplant is facing potential heavy sanctions from South Korea’s financial authorities over allegations of inflating revenue at its U.S. subsidiary, in what is seen as an attempt to boost valuation ahead of a planned initial public offering (IPO).
According to financial authorities and industry sources on July 21, the Financial Services Commission’s (FSC) Audit Review Committee will hold a meeting on July 24 to review the Financial Supervisory Service’s (FSS) audit findings on SK Ecoplant. An initial review was held last week but ended without a conclusion.
The FSS has reportedly determined that SK Ecoplant intentionally violated accounting standards, recommending criminal prosecution, dismissal of the former CEO, and fines amounting to billions of won.
The motivation for accounting violations is classified into “intentional,” “gross negligence,” or “negligence,” with intentional misconduct subject to the harshest penalties, including criminal charges and executive dismissal.
The FSS has been conducting a review into allegations that SK Ecoplant inflated its revenue in fiscal years 2022 and 2023. The core allegation involves the company overstating the revenue of its U.S. fuel cell subsidiary (Company A), thereby producing and disclosing misleading consolidated financial statements.
The FSS suspects SK Ecoplant may have had an incentive to inflate its corporate value in preparation for its IPO, as part of its expansion into future energy businesses.
SK Ecoplant has responded, stating, “The accounting treatment in question was based on a review by an external accounting firm of the U.S. subsidiary’s new business. We are fully cooperating to clarify that the accounting practice was not related to the IPO.”
If the Audit Review Committee upholds the FSS’s findings, the proposed sanctions will be finalized by the Securities and Futures Commission (SFC), potentially triggering a criminal investigation and delaying SK Ecoplant’s IPO timeline. The company had reportedly promised investors during a KRW 1 trillion pre-IPO round in 2022 that it would go public by 2026.
This case could also have broader implications for the SK Group, which still bears the scars of the 2003 SK Global accounting scandal that led to the imprisonment of Chairman Chey Tae-won. A confirmation of the FSS’s proposal would likely result in reputational damage at the group level.
Adding to SK’s burden is the recent trend of heightened regulatory enforcement, following criminal referrals of high-profile executives such as HYBE’s chairman Bang Si-hyuk and a former CEO of Meritz Fire & Marine Insurance.
This may also mark the first major accounting fraud case involving an affiliate of a major conglomerate under the current Yoon Suk-yeol administration, giving the case symbolic significance.
On July 9, the FSC announced it would toughen sanctions on unfair trading practices such as stock manipulation, and also reinforce penalties for accounting fraud.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
