QUANTAPIA, which was sanctioned by financial authorities for accounting fraud allegations, has been acquitted by the court. QUANTAPIA was suspended from trading after the accounting fraud was detected and was unusually quickly expelled from the KOSDAQ market. However, with the court's ruling of not guilty, industry attention is drawn.
The Seoul Eastern District Court's Criminal Division 7 (Judge Jo Ah-ram) acquitted QUANTAPIA and company executives on the 11th regarding accounting fraud allegations.
Earlier, the Financial Services Commission imposed a penalty surcharge on QUANTAPIA for accounting violation allegations in December 2023 and referred the case to prosecutors. At that time, the Financial Services Commission's Securities and Futures Commission detected that the company falsely recognized sales as fabricated using financing from another company controlled by its largest shareholder, without providing services to clients for the 2018 fiscal year.
According to the Financial Services Commission, the company forged documents requested by auditors and colluded with clients to respond falsely to inquiries in order to conceal the details of the falsely recorded sales, also obstructing a normal external audit. The Southern District Prosecutors' Office secured evidence through two searches last year and indicted the company.
In the process, QUANTAPIA was rapidly expelled from the stock market. Trading was halted immediately after accounting standards violations were detected, and in January of last year, it became subject to qualification review for listing, receiving delisting deliberation from the Corporate Review Committee two months later. Moreover, less than a month later, the KOSDAQ Market Committee voted for delisting. The company promptly filed an objection, but the delisting decision was not overturned.
The request for a suspensive injunction against the delisting was denied. Typically, it takes 1 to 2 years from becoming subject to qualification review for listing to receive a delisting decision from the KOSDAQ Committee. The company and shareholders expressed opposition, stating that QUANTAPIA's delisting occurred unusually quickly, yet a settlement trading of QUANTAPIA stocks was conducted in February of this year.
The reason the court acquitted QUANTAPIA, which had already been delisted after sanctions from the Financial Services Commission, is that there was no law to punish the act.
To understand the background of this ruling, one must go back to July of last year when the Constitutional Court ruled certain punitive provisions of the External Audit Act unconstitutional. At that time, the Constitutional Court, with an 8 to 1 vote, made a decision of constitutional nonconformity regarding Article 39, Paragraph 1 of the External Audit Act, which stipulates penalties for violations of accounting processing standards.
The problematic part of the law was that it did not set a separate maximum fine for cases where there were no profits gained or losses avoided from fraudulent financial statements or instances that were difficult to quantify.
The Seoul Eastern District Court stated regarding the charges against QUANTAPIA that 'it is difficult to estimate the benefits gained or losses avoided from the false financial statements solely based on the evidence presented by the prosecution, and there is no evidence to acknowledge this,' and added that 'the External Audit Act, which has lost its effectiveness, cannot be applied either.'
Following the Constitutional Court's ruling, the External Audit Act was partially amended last April. The Financial Services Commission stipulated that the maximum penalty for profits gained or losses avoided as a result of violations is set at 1 billion won in cases where there are no benefits or where it is difficult to calculate. However, the court stated that 'the amended legal provisions were legislated after the defendant's actions, so they cannot be applied retroactively to this case.'