It belatedly came to light that TYM Co., a domestically listed agricultural machinery maker, filed an administrative lawsuit challenging financial regulators' sanctions for accounting violations, including so-called "channel stuffing."
The Seoul Administrative Court will hold the third hearing on Nov. 13 for TYM Co.'s lawsuit seeking to overturn administrative measures against the Securities and Futures Commission.
At the end of last year, the Financial Supervisory Service determined that TYM Co. had disposed of "Tier 4" agricultural machinery to domestic dealerships in a push-sale manner in 2022, resulting in overstated sales and potential violations of the Financial Investment Services and Capital Markets Act and the Act on External Audit of Stock Companies. The tier of agricultural machinery refers to permissible pollutant standards, meaning the higher the tier, the greater the pollutant emissions.
As environmental regulations tightened, shipments of TYM Co.'s Tier 4 products were banned starting in June 2022. Although dealership inventory sales were allowed, TYM Co. accounted for about 64 billion won worth of all Tier 4 products as having been sold to dealerships.
Accordingly, the Securities and Futures Commission under the Financial Services Commission (FSC) decided on sanctions against TYM Co., including an 1.125 billion won penalty surcharge, a three-year designation of an external auditor, a recommendation to dismiss the responsible executive, and a corrective order. TYM Co. paid the penalty surcharge first but said it "cannot accept the regulators' decision" and is seeking to overturn the measures, with the trial underway.
A TYM Co. official said, "The sales were lawful, and the determination of 'channel stuffing' is not consistent with the facts," adding it is "a matter of accounting standard interpretation."
TYM Co. paid the 1.125 billion won penalty surcharge. Regardless of the lawsuit, failing to meet the payment deadline could result in disadvantages.
The industry views the lawsuit as a matter directly tied to governance risk, beyond a simple accounting dispute. That is because the subject of the dismissal recommendation is Executive Director Kim So-won (chief strategy officer), the daughter of Chair Kim Hee-yong and a third-generation owner.
Kim, an executive director, is a key executive overseeing strategy and finance at TYM Co. and is currently also a board member.
If her dismissal materializes before the court's decision, disruptions to the third-generation management structure succeeding Chair Kim Hee-yong would be inevitable.
TYM Co., a mid-sized agricultural machinery company spun off from BYUCKSAN Group in 2012, posted 788.7 billion won in revenue and 16 billion won in operating profit last year. Chair Kim Hee-yong is CEO, with second son Vice President Kim Sik (chief operating officer) and youngest daughter Executive Director Kim So-won participating in management.
Meanwhile, the eldest son, former Vice President Kim Tae-sik, stepped down in the past over allegations of distributing obscene materials, and Vice President Kim Sik resigned from his inside director post last year over suspected drug use before returning, but is now on trial for allegedly causing a traffic accident while under the influence of drugs.
Currently, Vice President Kim Sik is the largest shareholder with 20.30% equity, former Vice President Kim Tae-sik holds 5.34%, and Executive Director Kim So-won holds 4.10%. Chair Kim Hee-yong donated his equity to Vice President Kim Sik.
With Vice President Kim Sik facing legal risks, if Executive Director Kim So-won also steps back from front-line management due to action by the financial authorities, analysts say there would be no third-generation owner to lead TYM Co. after Chair Kim. All three third-generation owners—Kim Tae-sik, Kim Sik, and Kim So-won—would also bear the dishonor of having broken the law. This is seen as a reason for TYM Co.'s hard-line response.
A lawyer specializing in the capital market said, "(From TYM Co.'s perspective) they will try to prevent a situation where all three third-generation owners break the law," but also noted, "Channel stuffing—where corporations push more products into distribution channels than actual demand to inflate sales—is a serious issue for the credibility of listed companies."
The lawyer added, "There is also an aspect of trying to buy time so that Executive Director Kim So-won can remain on the board until the court issues a final judgment on the lawsuit."
Some also say the case highlights the vulnerability of corporate governance among domestic corporations.
Jeong Seong-yeop, head of the Korea office of global governance advisory firm Sodali & Co., said, "Overseas institutional investors are concerned when an individual involved in serious matters such as accounting and finance remains on the board," adding, "It can negatively affect investment."
Jeong also said, "Overseas, when such issues arise and are contested in court, the person is first removed from the board and then returns as a board member only if a final ruling finds no issues," adding, "But in Korea, the opposite is true, with the person kept on the board and excluded only after the final ruling."