* S.Korea to report BioLogics, its CEO to prosecutors for probe
* Samsung failed to disclose key agreement with partner -regulator
* FSC delays decision on potential violation in 2015 bookkeeping
* BiLogics says will pursue all possible legal measures (Add BioLogics statement)
By Heekyong Yang and Hyunjoo Jin
SEOUL, July 12 (Reuters) - South Korea's top financial regulator said on Thursday contract drug manufacturer Samsung BioLogics Co violated accounting rules in a case involving a joint venture and that it will report the firm and its CEO to prosecutors for investigation.
The decision came after a months-long probe of bookkeeping of BioLogics, an affiliate of Samsung Electronics, amid growing scrutiny of South Korea's family-owned conglomerates under the administration of President Moon Jae-in.
Samsung's biodrug business has been touted as a new growth engine for South Korea's biggest conglomerate Samsung Group, which includes crown jewel Samsung Electronics, amid a slowdown in the global smartphone market.
The Financial Services Commission (FSC) said Samsung BioLogics failed to disclose an agreement with Biogen Inc which gave the U.S.-based firm a call option to increase its stake in their drug developing joint venture Samsung Bioepis.
"It's a serious violation of accounting standards, and the committee ruled that (Samsung) knowingly and intentionally decided not to disclose it," the regulator said in a statement.
The committee plans to file complaints with the prosecutor against Samsung BioLogics, its chief executive and an external accountant involved in the case for further investigation.
Samsung's auditing firm Samjong KPMG will be also restricted from conducting an audit into Samsung BioLogics over the next four years, the regulator said.
Calling the government's decision "very regrettable", BioLogics said the firm will pursue "all possible legal measures including an administrative lawsuit".
"We have legally implemented all accounting procedures," the company said in a statement on its website.
KPMG declined to comment.
The regulator, however, delayed a decision on whether Samsung also violated accounting rules when it switched to valuing its stake in Samsung Bioepis at fair market value instead of at book value.
The accounting switch helped BioLogics swing to a profit just ahead of its $2 billion IPO in 2016.
The regulator will make a further review before deciding later, it said.
Shares in Samsung BioLogics closed up 3.4 percent prior to the announcement.
Samsung C&T Corp, in which Samsung Group heir Jay Y. Lee is the top shareholder, holds 43.44 percent of Samsung BioLogics, followed by Samsung Electronics with a 31.49 percent stake. (Reporting by Heekyong Yang and Hyunjoo Jin; Editing by Miyoung Kim and Muralikumar Anantharaman)