Lee Bok-hyun, Financial Supervisory Service Chief, Asks "Is Kakao Mobility Contract Reasonable?"

"Why Now Propose Commission System Reform?"
Kim Beom-su, Kakao Founder, Remains Tight-Lipped on Arrest Warrant Review

Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), attended a meeting of accounting firm CEOs held at the Korean Institute of Certified Public Accountants at 10 a.m. on the 6th. After the meeting, he told reporters, "Kakao Mobility is undergoing accounting supervision, and Kakao is facing sanctions for unfair trading; both investigations are currently underway."

Lee Bok-hyun, Governor of the Financial Supervisory Service, is delivering opening remarks at the "Accounting Firm CEO Meeting" held on the 6th at the Korea Institute of Certified Public Accountants building in Seodaemun-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Earlier, the FSS detected allegations of accounting fraud by Kakao Mobility and initiated accounting supervision. Kakao Mobility has separate contracts with its subsidiary KM Solution, under which it receives 20% of operating revenue from affiliated taxis as royalties (continuous franchise fees) and then returns about 16% under contracts labeled as partnerships. The FSS suspects that despite the actual commission being around 4-5%, Kakao Mobility inflated its revenue through this dual-structure arrangement and is investigating potential unfair trade practices. It is estimated that only last year, revenue was overstated by approximately 300 billion won.

In response, Kakao Mobility explained that it received an "unqualified opinion" during the accounting firm's audit process and denied any revenue inflation. Kakao Mobility was in the process of conducting procedures related to its initial public offering (IPO) this year. Last year, it selected five securities firms as lead managers, including Korea Investment & Securities, Daishin Securities, Morgan Stanley, Credit Suisse (CS), and Citigroup Global Markets. Typically, the FSS conducts accounting reviews for companies planning IPOs. If intentional or grossly negligent violations are found, supervision is initiated.

Governor Lee stated, "Whether it was corporate taxis or individual taxis, we need to discuss in a public forum whether there was autonomy in separate contract signing, whether there was even a single case of separate contract signing, and whether the commission charging system operated by various companies is a common practice." However, he also pointed out, "It is questionable whether it makes sense to charge fees proportional to the revenue of the person receiving the information usage fee." He further questioned why Kakao Mobility, if its contracts with affiliated taxis were economically reasonable, is now proposing to reform the commission system. Lee added, "In any case, they claim there was no intention to increase revenue and said they would not reflect it in the valuation," and explained, "We plan to carefully review related documents such as the securities registration statement."

Meanwhile, when asked about the review of an arrest warrant for Kim Beom-su, founder of Kakao, Governor Lee refrained from commenting. Regarding Kakao's management normalization, he said it would not be considered a mitigating factor in disciplinary actions. Following controversies over market manipulation during the acquisition of SM Entertainment and accounting fraud allegations involving its subsidiary Kakao Mobility, Kakao established an external body to monitor compliance and ethical management of its affiliates. The committee, independent from Kakao, plans to select major risk factors of Kakao affiliates and establish and operate a compliance monitoring system. The inaugural chairperson is former Supreme Court Justice Kim So-young.

Regarding this, Governor Lee said, "(The company's self-help measures) are usually considered as mitigating factors in sentencing, but currently, there is no content announced by Kakao," and added, "At this stage, it is questionable whether it can be considered as a mitigating factor."

This content was produced with the assistance of AI translation services.