Pressure from the Prosecutor's Office, Financial Supervisory Service, and Fair Trade Commission... How Far Will Kakao Go?

Busy Preparing Measures Including Compliance Oversight Body
Criticism That 'Targeting Specific Companies Is Inappropriate'

The judicial risks facing the Kakao Group are growing increasingly serious. Following investigations and inquiries by the prosecution and the Financial Supervisory Service, the Fair Trade Commission and other agencies have also launched comprehensive investigations into Kakao and its affiliates.

Kakao Pangyo Ajit in Seongnam, Gyeonggi. Photo by Jinhyung Kang aymsdream@

Criticism has also emerged from the business and legal communities, stating that “it is inappropriate for even the president to make statements targeting a specific company.”

Financial Supervisory Service, Fair Trade Commission, Prosecution, and National Pension Service Involved

The Financial Supervisory Service is currently conducting an accounting audit related to allegations that Kakao Mobility inflated its sales by around 300 billion won. The FSS believes that Kakao Mobility entered into dual contracts with affiliated taxi companies and inflated the fare revenue received from them. According to the FSS’s findings, Kakao Mobility signed a ‘franchise contract’ with affiliated taxis and received 20% of the operating revenue as royalties. Through a ‘business partnership contract,’ it returned 15-17% of the revenue to the franchisees, effectively earning only 3-4% of the operating revenue. Nevertheless, it reported the revenue as 20%, which is considered accounting fraud and could lead to prosecution. An FSS official stated, “We will examine the intent behind creating these two contracts.”

The Fair Trade Commission is also reviewing sanctions related to allegations that Kakao Mobility blocked calls from competitor affiliated taxis such as UT and Tada. The FTC has sent a review report containing sanction recommendations to Kakao Mobility and is expected to discuss the level of sanctions at a plenary meeting after receiving a response from Kakao Mobility.

Investigations by the prosecution and the Financial Supervisory Service’s Capital Market Special Judicial Police (Special Judicial Police) into Kakao and Kakao Entertainment, involved in the ‘SM Entertainment stock price manipulation’ case, are ongoing. On the 26th of last month, the Special Judicial Police referred three executives?Bae Jae-hyun, Kakao’s Chief Investment Officer; Kang Ho-jung, Head of Kakao’s Investment Strategy Office; and Lee Junho, Head of Strategic Investment at Kakao Entertainment?as well as two corporations, Kakao and Kakao Entertainment, to the prosecution on charges of violating the Capital Markets Act. Kim Beom-su, founder and head of the Future Initiative Center, also appeared before the FSS last month and underwent a nearly 16-hour intensive investigation. The prosecution and Special Judicial Police believe they colluded with private equity firms to manipulate SM Entertainment’s stock price and are conducting extensive investigations into the involved private equity firms.

Meanwhile, President Yoon Suk-yeol (age 63, Judicial Research and Training Institute class 23) further fueled the situation by specifically criticizing Kakao.

At the 21st Emergency Economic and Livelihood Meeting on the 1st, President Yoon stated, “Kakao’s tyranny over taxis is highly immoral,” and added, “The government must definitely prepare measures such as sanctions against such immoral behavior.”

The National Pension Service has also taken proactive action. According to the Financial Supervisory Service’s electronic disclosure system on the 2nd, the National Pension Service upgraded its investment purpose in Kakao and Kakao Pay from ‘simple investment’ to ‘general investment.’ ‘Simple investment’ means not exercising or interfering with management rights, whereas ‘general investment’ involves actively exercising shareholder rights such as opposing director appointments and proposing dividend increases.

Kakao’s ‘Compliance Oversight Committee’ and ‘Organizational Reform’ Moves

Under comprehensive government pressure, Kakao is striving to devise countermeasures. Kakao’s management views the current situation as a top-level emergency and has begun reforming its management system.

On the 30th of last month, Kakao held a community management meeting and decided to introduce a system similar to a ‘compliance oversight body.’ On the 3rd, Kakao established the ‘Compliance and Trust Committee’ and appointed former Supreme Court Justice Kim So-young as its inaugural chairperson. The committee will monitor compliance management across affiliates and establish a management system aligned with societal expectations. If necessary, Kakao plans to accept external oversight for new businesses or large-scale investments.

Kakao Mobility also announced a complete overhaul of its taxi commission system. On the 2nd, Kakao Mobility issued a statement saying, “We will hold an emergency meeting to gather taxi drivers’ opinions for a comprehensive reform of the franchise taxi commission and other taxi commission systems.” It added, “We take the recent concerns seriously, viewing them as feedback and criticism from the industry and the public regarding our business to date. We will promptly hold discussions with the taxi industry, including commission reforms, to discuss the overall taxi service.”

Reporter Lim Hyun-kyung, Legal Newspaper

※This article is based on content supplied by Law Times.

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