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Ex-CEO of DSME Sentenced to Nine Years in Prison

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Published Jan 1, 2018 1:53 PM by The Maritime Executive

Last week, South Korea's supreme court confirmed the convictions of Ko Jae-ho and Kim Gap-jung, the former CEO and the former CFO of DSME, on charges of fraud totaling to nearly $5 billion. In a hearing before a lower court, Ko was sentenced to nine years in prison and Kim received six years. They have now exhausted their appeals to the nation's highest court.

"Ko orchestrated the shipbuilder’s financial statements and business plans for the fiscal year from 2013 and 2014 to cover up the company’s mounting deficits,” the court ruled. 
“The court, therefore, has decided to confirm the lower court’s verdict in pronouncing him guilty for accounting fraud and other charges.”

The criminal charges stemmed from Ko's alleged involvement in inflating DSME's reported earnings over the period from 2012 to 2014 by artificially minimizing operating costs and obscuring the losses suffered by subsidiaries. Authorities say that this alleged $5 billion fraud helped the shipbuilder secure billions in additional loans for which it would not otherwise have been eligible – loans which forced it to seek massive, multi-billion-dollar bailouts from the Korean state. Ko resigned from DSME in 2015 after the shipbuilder reported a $2 billion loss in a single quarter. 

In addition, booking non-existent profits gave the company the ability to pay out millions of dollars in bonuses to employees and executives. Ko Jae-ho was accused of paying out $420 million in bonuses to executives over the same period that his firm was reporting inaccurate earnings.

The underlying weakness in the shipbuilding market that precipitated DSME's decline is expected to continue into next year. The yard's new order volume is expected to shrink by 30 percent next year, down to $7.4 billion. The other two giant Korean yards, Samsung Heavy Industries and Hyundai Heavy Industries, expect sales to decline by 35 percent and 11 percent respectively. Samsung expects its operating losses to continue until 2019, and it will issue an additional $1.4 billion in stock in May in order to offset weak sales.