Fair Trade Commission Files Criminal Complaint Against Kakao's Kim Beom-su's Private Company for 'Separation of Banking and Commerce' Violation

Kim Beom-su, Head of Kakao Future Initiative Center, appeared at the comprehensive audit of the Ministry of Science and ICT and related audit target organizations held at the National Assembly on the 24th, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

[Asia Economy Sejong=Reporter Dongwoo Lee] The Fair Trade Commission (FTC) has decided to file a criminal complaint against K-Cube Holdings (KCH), a personal company wholly owned by Kim Beom-su, head of Kakao Future Initiative Center. Although financial and insurance companies belonging to business groups subject to mutual investment restrictions are generally prohibited from exercising voting rights on domestic affiliates' stocks, K-Cube Holdings violated the 'separation of finance and industry' regulation under the Fair Trade Act. However, Kim Beom-su was not included in the complaint as it has not been proven that he instructed or was involved in exercising the voting rights.

On the 15th, the FTC announced that it would issue a corrective order (future prohibition order) and file a criminal complaint against K-Cube Holdings, which belongs to the Kakao business group, for violating regulations by exercising voting rights on Kakao and Kakao Games stocks it holds. As of the end of September, K-Cube Holdings holds a 10.51% stake in Kakao, making it the second-largest shareholder after Kim Beom-su (13.27%). It also holds 0.91% of Kakao Games shares. Established in 2007 for software development and leasing businesses, its related revenues are either nonexistent or minimal.

According to the FTC, over 95% of K-Cube Holdings' total revenue in 2020 and last year came from financial income (dividends and financial investment income). Considering this, the FTC judged that K-Cube Holdings is classified under the Korean Standard Industrial Classification as a company whose main industrial activity is finance, thus subject to the separation of finance and industry regulations. The Fair Trade Act imposes voting rights restrictions on financial and insurance companies belonging to business groups to prevent them from expanding control by investing funds accumulated through financial or insurance business operations into affiliates. This is to restrict the use of held funds for succession of management rights or maintenance and strengthening of control by the group head.

K-Cube Holdings exercised voting rights 14 times at Kakao's regular shareholders' meetings and 11 times at Kakao Games' shareholders' meetings in 2020 and last year. Among these, the agenda to shorten the board meeting convening period, approved at the 2020 Kakao shareholders' meeting, would likely have been rejected if K-Cube Holdings had complied with regulations and not exercised its voting rights. At that time, the National Pension Service and some minority shareholders opposed the agenda, arguing that shortening the convening period from 7 days to 3 days could reduce opportunities for independent outside directors to attend.

Min Hye-young, head of the Corporate Group Policy Division at the FTC, said, "This will serve as a serious sanction against violations of voting rights restrictions by financial and insurance companies to prevent large business groups from maintaining, strengthening, and expanding control through affiliated financial and insurance companies, raising awareness and caution."

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