FSS Initiates Top-Level Sanctions on Kakao Mobility for 'Accounting Fraud'

by Hwang Yoonju

Published 23 Feb.2024 07:45(KST)

Including Fine Imposition, CEO Dismissal Recommendation, and Prosecution Referral

Financial Supervisory Service building in Yeouido, Seoul. Photo by Heo Younghan younghan@

The Financial Supervisory Service (FSS) has determined that Kakao Mobility intentionally engaged in accounting fraud and is pursuing the highest level of sanctions.

According to the FSS on the 23rd, it sent a preliminary notice of measures regarding the accounting fraud allegations to Kakao Mobility the previous day. A preliminary notice of measures is a procedure in which the FSS informs the company of the proposed actions before submitting them to the Audit Committee. It includes the standards applied for the measures, the basis for the judgment, and the expected level of sanctions.

In the proposed measures, the FSS applied the highest sanction standard, “Intentional Level 1.” The sanction standards are divided by motive of the violation into intentional, gross negligence, and negligence, and by severity into levels 1 through 5.

The FSS plans to impose fines and refer the case to prosecution against Kakao Mobility as a corporation. It is reported that it recommended dismissal and a six-month suspension of duties for CEO Ryu Geung-seon and former CFO Lee Chang-min.

The FSS has been conducting an audit based on its view that Kakao Mobility illegally inflated sales from its franchise taxi business since 2020. Kakao Mobility’s franchise taxi business operates on a structure where transportation companies pay about 20% of the fare as a commission, and Kakao Mobility returns 16-17% of the fare to the transportation companies as compensation for advertising and data services.

The FSS believes that in this case, the net method should have been applied, recognizing only 3-4% of the fare as sales, but Kakao Mobility applied the gross method, recognizing the entire 20% as its sales. The FSS estimates that out of the consolidated sales of 791.5 billion KRW last year, approximately 300 billion KRW was inflated.

Meanwhile, the final level of disciplinary action against Kakao Mobility will be confirmed after review by the Audit Committee and the Securities and Futures Commission. Considering the schedule of the Audit Committee, the agenda is expected to be submitted by the end of March.