This article was published on Jan. 9, 2025, at 8:09 a.m. on the CHOSUNBIZ MoneyMove site.
It took five months to conclude that Kakao Mobility inflated its revenue, due to disagreements within the Securities and Futures Commission under the Financial Services Commission regarding the company's intent. Because of this, the final decision on sanctions against Kakao Mobility was delayed several times. The Securities and Futures Commission is the body that determines the sentencing for companies accused of accounting manipulation. After several meetings, it was concluded that there was no intent, and that Kakao Mobility made significant mistakes, termed 'gross negligence,' rather than intentionally manipulating the accounting.
According to the Financial Services Commission on the 9th, during discussions at the Securities and Futures Commission, three out of four commissioners believed that Kakao Mobility overestimated its revenue but did not act with intent. Only one commissioner judged that Kakao Mobility had intent. Since the nature of the accounting manipulation affects the sentencing based on whether it was intentional or a simple mistake, this motivation is central to the discussions of the Securities and Futures Commission.
The proposal for sanctions against Kakao Mobility was submitted to the Securities and Futures Commission in June of last year; however, differing opinions among commissioners regarding the motivation delayed the outcome until November of the same year. A commissioner who initially expressed a minority opinion claiming that there was intent yielded to the majority opinion of other commissioners at the last minute.
Thanks to this, Kakao Mobility breathed a sigh of relief as the level of sanctions was reduced. Initially, the Financial Supervisory Service (FSS) determined that Kakao Mobility's motivation was intentional, classified as one out of five for seriousness. Both the motivation and seriousness were rated at the highest level. However, the Securities and Futures Commission, a higher authority, downgraded it to gross negligence. As a result, the company's penalty surcharge was cut in half from 6.9 billion won to 3.4 billion won, and the penalty surcharge against Ryoo Geung-seon, Kakao Mobility's CEO, was reduced from 690 million won to 346 million won.
Previously, Kakao Mobility was accused of inflating its revenue while conducting a taxi franchise business and faced the Securities and Futures Commission. Kakao Mobility should have recognized revenue as the net amount after deducting expenses, but it recorded total amounts as revenue. The inflated revenue amounted to 400 billion won in 2023 alone. In response to the FSS's observations, Kakao Mobility corrected all financial statements for 2020 to 2023.
The Securities and Futures Commission's judgment that Kakao Mobility's motivation was gross negligence rather than intent was based on three main reasons. The first reason was that the complexity of the contractual relationships likely led to a failure to recognize that the net amount method should be applied to calculate revenue.
Kakao Mobility partnered with a transportation company through its subsidiary, KM Solutions, receiving 20% of the fare and returning 16-17% through taxi operation data and participation fees for marketing activities. Kakao Mobility had handled its accounting using the aggregate method, recognizing the former as revenue and the latter as expense since fares and data/marketing are separate contracts.
The second reason was that the external auditor, an accounting firm, also processed Kakao Mobility's revenue using the aggregate method, finding no evidence of collusion with the accounting firm during the process. The final reason was that even if Kakao Mobility inflated its revenue to increase the public offering price before going public, both revenue and the establishment of corporate value multiples are important in determining the offering price.
As the allegations of Kakao Mobility's accounting manipulation have also been passed to the prosecution, the Securities and Futures Commission stated that if intent is revealed by the investigative agency, it would reconsider the case. Relevant materials have also been sent to the prosecution. However, the likelihood of a reexamination is slim.
A relationship in the financial investment industry noted, 'Given the significant issues surrounding Kakao Mobility, the Securities and Futures Commission left open the possibility for reexamination,' but added, 'However, it seems unlikely that a reexamination will occur.'