Serome Technology, Doubt about Recapitalization after Fraudulent Accounting

As it has been doubted that Serome Technology raised funds of approx. 380 billion through paid in capital increase in the early months of 2000, and increased the capital just after inventing the accounting books, the prosecution started an investigation.

The detective division 9 of Seoul Public Prosecutor`s Office said on November 7, “The internal staff laid complaints on the fraudulent accounting of the business report of 1999 against Serome Technology. So we are currently investing calling the accounting staff.”

Park Jun-Ho, chief of section of public relations of Serome Technology acknowledged the fact of fraudulent accounting in a telephone interview. He said, “We used to increase the sales and profits by taking partial inventories as sales.”

▽Fraud of Paid In Capital Increase?〓The part to be disclosed, is that Serome Technology changed the inventories of approx. 15 billion won into sales the financial statements of 1999.

Serome Technology had losses of approx. 10 billion won in 1999, but inflated the sales with 15 billion won by making the insolvent inventories as charge sales before the capital increase and faked the accounting books. In the actual, Serome Technology reported the performance results for 1999 including the sales of 26.2 billion won and net income of 1.56 billion won to Financial Supervisory Service (FSS) in March 2000.

Mr. Park of Serome Technology insisted, “We are not sure about the amount of 15 billion won but we acknowledged that the partial inventories was invented into sales. However, we have never fabricated the accounting books for the capital increase because the paid in capital increase was completed in February and the settlement results were published in March.”

However, one analyst of a certain securities company indicated, “If the annual performance of the company was published at the end of January, experts would know already before that. The most shareholders participated for the capital increase in February, was highly to give money believing the fraudulent accounting books of Serome Technology.”

▽Competition for the Management Right 〓 Oh Sang-Su, the president of Serome Technology is in a severe competition for the management right from August with Hong Gi-Tae, the president of Serome Venture Investment. Serome Technology has still owned approx. 170 billion won among amounts received when the capital was increased in 2000. According to the securities industry, the recent dispute on the management right is caused by an ownership of the above money.

The official of Serome Technology repelled against the investigation, “the president Hong informed the prosecution of the doubt about the fraudulent accounting on purpose to inflame the current management.” On the other hand, Park Won-Tae, the management director of Serome Venture Investment said “We heard of the prosecution`s investigation of Serome`s fraudulent accounting, but we just knew the detail fact first on November 7.”

The dispute of the management right will be a big injury to KOSDAQ market and venture companies. The analysts of the certain securities company said “If the fraudulent accounting is true, the paid in capital of Serome is kind of the fraud. In the status, anyone can hardly exercise the management right honorably.“

Wan-Bae Lee Sang-Rok Lee roryrery@donga.com myzodan@donga.com