Legal experts are studying the implications of a decision by Seoul prosecutors to indict three accountants at Deloitte Anjin over a valuation dispute with Kyobo Life Insurance, which broke a tradition of firms settling differences through negotiation.

The Seoul Central District Prosecutors’ Office last week indicted three accountants at Deloitte Anjin, one official at Affinity Partners and another at IMM Private Equity for unjust enrichment. Prosecutors also investigated an official at Baring Private Equity Asia, who avoided being indicted because he is in Hong Kong.

A consortium of the three private equity firms and Singapore’s GIC acquired 24% of Kyobo Life Insurance for 1.2 trillion won ($1.1 billion) in 2012. Under the agreement, the investors had a put option, allowing them to sell their shares back to Kyobo if the insurer did not go public by 2015. The listing did not happen, so the consortium exercised the put option in 2018 and hired Deloitte Anjin to value Kyobo’s stock.

The prosecution is a very unusual move, legal observers said. Disagreements are common between a seller and a buyer over the stock valuation, but most cases are resolved by negotiations. A few end up in civil court, but not in the criminal court.

“Even lawyers were surprised by the prosecution,” said a legal source. “They wanted to know about the specific reasons for Deloitte Anjin’s accountants being indicted.”

Kyobo reported the accounting firm in April last year, accusing it of violating the Certified Public Accountant Act by using a wrongful method to value the shares.

The insurance company argued that Deloitte Anjin estimated the stock price based on share prices in June 2018 instead of at the exercise date, which was in October 2018, with an intention of inflating the price in favor of the investors. The price calculated by Deloitte Anjin was 409,000 won apiece, while Kyobo argued that it should have been set at about 200,000 won.

The key to the case is whether any illegal actions took place in the process of valuing the stock price, observers said.

Affinity Partners and IMM Private Equity are being represented by Kim & Chang, which acted as legal counsel to the investor consortium on the deal in 2012.

The investors took the dispute to the International Court of Arbitration in 2019, and the Seoul prosecution could favor Kyobo in that process, legal observers said. A court ruling is expected to come in the third quarter of the year. (Reporting by Si-eun Park)