This article was displayed on the ChosunBiz MoneyMove (MM) website at 5:44 p.m. on Feb. 4, 2026.
The first-instance ruling in the 100 billion won–plus damages suit between Smilegate RPG (now Smilegate Holdings), developer of the game "LOST ARK," and Rhinos Asset Management is about a month away. Because it could set a benchmark for how to assess accounting treatment standards for convertible bonds (CBs) at unlisted companies and for determining listing responsibility, the case is drawing close attention not only from the gaming industry but also from the accounting and investment banking (IB) sectors.
Separately from this lawsuit, Smilegate is also in the midst of divorce proceedings involving founder and major shareholder Kwon Hyuk-bin, chief vision offering officer (CVO), and the founder's spouse. As the corporate value of Smilegate RPG is cited as a key variable in calculating the division of property, some interpret the damages suit as being intertwined with the divorce case, but among legal sources, the prevailing view is that the two cases are legally separate.
◇ Fierce battle for more than two years... first-instance ruling on March 12
According to the IB industry and according to legal sources on the 4th, the 31st Civil Division of the Seoul Central District Court (Presiding Judge Nam In-soo) will hold the first-instance sentencing hearing for the damages and purchase price claims suit between Smilegate RPG and Rhinos Asset Management on March 12.
The suit was filed in Nov. 2023. The reason: Smilegate RPG did not list within the period promised with investor Rhinos Asset Management. Rhinos invested 20 billion won via a convertible bond (CB) in Dec. 2017, and the contract stated that "if net profit for the fiscal year immediately preceding the CB's maturity (Dec. 20, 2023), i.e., 2022, is at least 12 billion won, the company will pursue a listing."
Rhinos argues that despite Smilegate RPG meeting sufficient conditions, it did not list, causing at least 100 billion won in damages. In fact, Smilegate RPG posted 364.1 billion won in operating profit in 2022, becoming a unicorn with a corporate value of at least several trillion won.
But once the accounting treatment was applied, the outcome changed. Due to the rise in corporate value, a 535.7 billion won valuation loss on the convertible bond (CB) occurred, and as that loss was reflected as a net loss, Smilegate RPG failed to meet the "listing requirement" agreed with Rhinos (Smilegate RPG's position). Operating profit in 2022 reached 364.1 billion won, but the company posted a net loss of 142.6 billion won.
The CB valuation loss arises because under International Financial Reporting Standards (IFRS), CBs are recognized as a liability. In Korea, listed firms and listing candidates have applied Korean International Financial Reporting Standards (K-IFRS) since 2011. While the previous K-GAAP treated CBs as a liability at the issue price level, under K-IFRS, if corporate value rises, the value of the conversion right and so on increases, and that increase is reflected in accounting as a corresponding increase in the liability.
Accordingly, Smilegate RPG delayed its IPO on the determination that it had "no obligation to list." The company's stance was to list when it could be valued higher. At the time, reliance on the single game "LOST ARK" was high, creating valuation pressure, and results were showing signs of slowing after peaking, so the company decided "it is not the timing to force a listing."
Smilegate RPG and Rhinos have been locked in a standoff for more than two years. Smilegate RPG argues it is natural to carry out the contract language as written, while Rhinos counters that "even though Smilegate RPG had the discretion to recognize the CB as either a liability or equity, it intentionally booked it as a liability to avoid listing."
Rhinos also argues that the contractual condition of "12 billion won in net profit" was effectively set with the intent that "when the corporate value reaches about 240 billion won, the company will pursue a listing." Smilegate RPG counters that there is no mention anywhere in the contract of "a corporate value of 240 billion won."
The two sides also offered different interpretations of the fact that NH Investment & Securities, the lead underwriter for Smilegate RPG's listing, lowered its fair corporate value estimate from 17 trillion won in 2022 to 7 trillion won in 2023. Smilegate RPG argues there was no reason to push ahead with a listing when the corporate value was objectively being assessed lower, while Rhinos counters that "it is common for securities firms to present very high price tags to be selected as bookrunners and then later adjust them to a reasonable level."
◇ Even if it loses the damages suit, the value of the property subject to division is already set
Six days after the first-instance ruling in the damages suit with Rhinos, on March 18, the third hearing date is set for the founder Kwon's divorce case.
The founder Kwon's spouse, a person surnamed Lee, filed for divorce with the Seoul Family Court on Nov. 15, 2022. Claiming that Kwon is responsible for the breakdown of the marriage, Lee is seeking to have half of the 100% stake in Smilegate Holdings divided. Kwon maintains a stance of protecting the family, but because the division of property upon divorce is said to total in the 8 trillion won range, the case has drawn attention as a "divorce of the century."
A key issue in the divorce case is the spouse Lee's assertion of being a "co-founder" who contributed 30% equity at the time Smilegate was founded. Assets owned before marriage and property acquired in one's own name during marriage are often classified as separate property and excluded from division, whereas marital property formed together is subject to division.
Smilegate RPG is a 100% subsidiary of Smilegate Holdings, which is subject to the property division claim, and the group's core business value is reflected in the valuation of the holdings. Although Smilegate RPG was recently merged into Smilegate Holdings through an absorption-type merger, changing the corporate form, the result is unchanged that the business value tied to LOST ARK is part of the property subject to division.
Then if Smilegate RPG loses the damages suit and pays damages in the 100 billion won range to Rhinos, how would that affect the founder Kwon's property division in the divorce? In the legal community, many say "in principle, the impact is minimal." That is because the appraisal of the property has already been completed.
In divorce property division, the valuation base date for assets such as real estate and stocks is typically set as the date of closing arguments at the trial court (first instance or second instance). In Kwon's case, however, because most of the assets are unlisted shares, valuation was a key issue, and it is known that the parties agreed to set Dec. 31, 2023, as the appraisal base date. Based on that date, the value of the Smilegate Holdings equity has been cited at a minimum of 4.9 trillion won to a maximum of 8 trillion won.
A legal source said, "Because the base date has already been set and the appraisal conducted, it is not easy to retroactively readjust the appraised value for events after the base date just because new variables arise later," adding, "For example, it would be difficult in practice to revalue the corporate value under the assumption of 'if it had listed' and increase the property subject to division."
However, if a loss in the damages case leads to an actual cash outflow in the 100 billion won range from Smilegate RPG, it could affect the real value of the assets received in the division, separate from the calculation for division. In particular, if Lee receives equity in Smilegate Holdings, a large cash outflow from the group's core business could lower the real value of the stock. Another legal source said, "Even if equity is divided, if the company faces a large damages burden, the recipient is effectively receiving stock carrying contingent liabilities, which could be disadvantageous economically."