In the process of exercising Kyobo Life’s put option (right to claim stock purchase), Deloitte Anjin Accounting Firm’s accountants and financial investor (FI) executives were prosecuted for violating the Chartered Accountants Act. The assessment authorities inflate the value of Kyobo Life’s stock, and it is believed that there was a problem with the price calculation of the accounting firm. The results of the investigation by the assessing authorities are expected to be a significant variable in arbitration trials currently submitted to the International Commercial Arbitration Commission (ICC).
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Kyobo Life Insurance claims “Anjin, intentionally inflating prices”
According to the legal and financial circles on the 20th, the 9th section of the Seoul Central District Prosecutor’s Office indicted three associates of Deloitte’s Anjin Accounting Firm on charges of violating the CPA the previous day. Two FI officials who commissioned Anjin Accounting Firm to calculate fair market prices were also prosecuted.
The prosecution is known to have concluded that Anjin Accounting Firm calculated the fair market value (FMV) evaluation base date in favor of FI in the process of exercising put options, such as the affinity consortium that signed a contract between Kyobo Life and shareholders.
Previously, Kyobo Life Insurance Chairman Shin Chang-jae signed a Shareholder Agreement (SHA) with Affinity Consortium in September 2012 that includes put options. The Affinity Consortium (24% total stake) consists of private equity funds such as Affinity Equity Partners, Bearing PE, and IMM PE, as well as the Singapore Investment Agency. At that time, the Affinity Consortium purchased 24% of Kyobo Life’s shares (245,000 won per share) held by Daewoo International and others for a total of 1.205 trillion won, including the contents of IPO until September 2015.
However, as Kyobo Life was unable to complete an IPO until the end of September 2015 due to continued low interest rates and strengthened insurance industry regulations, the affinity consortium eventually exercised a put option in October 2018. However, a problem arose when Deloitte Anjin Accounting Firm, who participated as a put option price evaluation agency of the affinity consortium at the time, evaluated Kyobo Life at 409,000 won per share.
It is generally said that the put option strike price is calculated based on the put option exercise date. However, despite the fact that the FI exercised the put option on October 23, 2018, Anjin calculated the price using the stock prices of competitors from the previous year as of June 2018. This is when the stock prices of major life insurers hit a record high.
Kyobo Life has filed a complaint with the prosecution, claiming that the Anjin Accounting Firm deliberately calculated the put option strike price in favor of FIs.
Affinity “Valuation is legitimate…I will call it in court”
In the insurance industry and the legal community, the prosecution’s prosecution of Anjin Accounting Firm is expected to be a significant variable in the outcome of the ICC trial regarding Kyobo Life’s put options.
The Affinity Consortium applied for international arbitration to the ICC Arbitration Court in March 2019, based on the evaluation report of Deloitte Anjin Accounting Firm. The international arbitration hearing was scheduled to take place in September of last year, but it will be held in March of this year due to Corona 19, etc. Final results are expected to be announced in the second half of this year.
Chairman Shin Chang-jae is sticking to the position that it cannot accept the amount of put option calculations applied for with the data of Anjin Accounting Firm. In particular, it is said that the prosecution’s prosecution of Anjin Accounting Firm will be actively utilized.
On the other hand, the affinity consortium also made a stand on the day and argued that’valuation is legitimate and normal’. In particular, Chairman Shin said that he had accused the Seoul Central District Prosecutor’s Office of fraud on the 13th for violating the agreement between shareholders and not promoting the listing of Kyobo Life Insurance.
Affinity emphasized, “The consortium’s position that the relevant valuations were legitimate and normal is unchanged, as the individuals prosecuted are long-time skilled and recognized industry-leading experts.” “The core of the arbitration trial is’the investment between shareholders and the failure to fulfill the promise of Kyobo Life Insurance Chairman Shin Chang-jae’. The adequacy of price calculation when exercising put options will be overshadowed by the international arbitration trial. Is irrelevant,” he said.
Efinity said, “In addition to the frauds of Chairman Shin Chang-jae, the prosecution will elaborate on charges such as business negligence, innocence, violation of the Personal Information Protection Act, and intimidation,” said Efinity. I said.