GS Engineering & Construction, the construction arm of GS Group, is likely to be fined 2 billion won ($1.9 million) by the nation’s financial regulator for failing to address investment risks, industry sources said Sunday.

The fine will be the largest issued under current disclosure rules.

“In a regular meeting on March 12, the Securities & Futures Commission will decide whether the builder broke the rules or not when the firm issued corporate bonds last year,” an official from the Financial Services Commission said.

The Securities & Futures Commission is a unit of the FSC authorized to issue sanctions against publicly-traded companies.

The nation’s third-largest builder faces the record-breaking fine over allegations that it broke disclosure regulations by issuing corporate bonds without addressing investment risks.

On Feb. 5, 2013, the company issued 380 billion won ($356 million) worth of corporate bonds to raise capital. Just two days after the bond issuance, the company announced that it had made an operating loss of 80 billion won for the September-December period of 2012.

“It is highly possible that corporate insiders were aware of the risk ahead of the bond issuance, but chose to keep silent,” an FSC official said.

“Following the SFC meeting next week, the FSC will make a final decision on whether the builder not only breached disclosure rules but also spread false information to potential bond investors.”

Bond and stock investors in GS E&C have suffered lower-than-expected returns on their investments this year, as the builder has suffered widening operating losses due to falling margins in overseas projects and a protracted business slump at home.

The construction company had its credit downgraded to “A+” from “AA-” after its posted an operating loss in the first quarter of 2013.

By Seo Jee-yeon (jyseo@heraldcorp.com)