FCP Files Shareholder Derivative Suit Against KT&G for Trillion-Won Loss Due to Treasury Stock Donation

Activist fund Flashlight Capital Partners (FCP) has filed a shareholder derivative lawsuit worth over 1 trillion won against KT&G. The lawsuit alleges that KT&G's board of directors caused the company a loss of over 1 trillion won by donating treasury shares for free or at a low price.

On the 20th, FCP stated, "We filed a shareholder derivative lawsuit on the 17th to recover the company's losses related to the KT&G board of directors donating treasury shares for free or at a low price to affiliated foundations and in-house welfare labor funds."

An FCP official said, "In January last year, 21 KT&G executives donated treasury shares worth 1 trillion won over 17 years since 2002. We requested the board to directly investigate the matter and recover the damages, but KT&G refused," adding, "The compensation from this lawsuit will be fully attributed to KT&G. We have decided to bear all legal costs to improve the governance of KT&G and the domestic stock market."

In particular, FCP claimed that the related donations have been carried out under a meticulous plan since KT&G's privatization in 2002. The board neglected its monitoring duties at the time, and affiliated foundations secured more than 12% of voting rights as of the end of last year. KT&G currently holds about 13% of treasury shares excluding the donated amount. An FCP official pointed out, "KT&G announced in November 2023 that it would cancel 7.5% of treasury shares within three years, but after canceling a small amount early last year, it has taken no action or made any mention of when or how it will cancel the remaining treasury shares."

Lee Sang-hyun, CEO of FCP, said, "KT&G is a textbook case showing why directors' duty of loyalty to shareholders must be introduced," and added, "Next month, we will disclose the first-year performance report of KT&G CEO Bang Kyung-man to the shareholders."

On the other hand, KT&G rebutted, saying, "FCP is making unilateral false claims." They explained, "Some treasury shares were contributed for corporate social responsibility, stabilization of workers' livelihoods and welfare enhancement, and win-win growth," and emphasized, "About half of the disposed treasury shares were paid-in contributions to the employee stock ownership association, which employees directly participate in."

A KT&G official said, "We have already canceled 3.5 million treasury shares (2.5% of total issued shares) and plan additional cancellations of 5% of existing treasury shares by 2026," adding, "We express deep concern that unilateral claims by some shareholders may damage the company's image and the original purpose of social contribution, and infringe on the common interests of shareholders."

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