GS E&C faces a class action suit for losses a group of individual investors suffered as the result of allegedly deceptive notices made through the stock market.

Updated : 2015-02-13 20:04

GS builder faces class action lawsuit

By Kim Jae-won
GS E&C faces a class action suit for losses a group of individual investors suffered as the result of allegedly deceptive notices made through the stock market. The Seoul Central District Court said Friday that it accepted a petition by 15 investors against the construction unit of GS Group for losses inflicted on some 10,000 individual stock investors due to the company’s purported false public notices with the Korea Exchange.The court said it will examine whether the company is liable for the losses.
By law, securities-related class action suits require a court’s acceptance before filing a lawsuit.
“It is hard to say that investors’ claim is a baseless rumor, according to postings of GS E&C and other documents. The court will deal with issues of compensation liability and the size later in hearings,” said the court in a statement.
Shares of GS E&C dropped 40 percent in two weeks in April 2013 as the company estimated its operating loss at 535.4 billion won in the first quarter of the year. The announcement came as an earning shock to investors because the company said two weeks before that its operating income marked 160.3 billion won in the previous year.
Hannuri Law, the legal representative of the investors, said GS E&C committed accounting fraud to hide that the company won plant construction orders below market prices.
“GS E&C could win orders for plant construction in foreign countries by lowering expenses and the prices of raw materials. The company had kept that a secret through accounting fraud, and suddenly announced that it would post a huge loss in the quarter,” said Lim Jin-sung, an attorney at Hannuri in charge of the case.
Lim said that the circumstantial evidence seemed to show that the company has been overstating its revenue and operating income by underestimating the relevant overseas construction costs until 2012 and reflected all at once the previously hidden loss in the first quarter of 2013 by adjusting the expected construction costs.
The Financial Services Commission imposed a 2 billion-won fine on the company in April 2014 for not reporting its poor operating results in plant construction and the issuance of 500 billon won in promissory notes. The decision came one month after a former GS E&C CEO was fined 10 million won for the same violation.
GS E&C said it will decide on its legal action after reviewing the court’s statement.
“We are not giving the statement yet. We will decide after reviewing it,” said Kim Chang-tae, a GS E&C spokesman.
GS E&C has been involving in many overseas construction projects, which account for nearly 40 percent of the total revenue of the company.


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