A court found that the penalty surcharge and personnel measures imposed by financial authorities on the then chief financial officer (CFO) over Kakao Mobility's so-called "inflated sales" allegations were unlawful. While the accounting method itself violated standards, the court said it was hard to deem that the executive had gross negligence.
The Administrative Division 3 of the Seoul Administrative Court (Presiding Judge Ho Seong-ho, Director General) ruled for the plaintiff on Apr. 10 in a suit filed by former Kakao Mobility CFO Lee Chang-min seeking to overturn measures including actions based on an audit outcome against the Financial Services Commission and the Securities and Futures Commission (SFC).
Financial authorities concluded that Kakao Mobility overstated operating revenue and operating expense from 2020 to 2022, thereby inflating sales. Kakao Mobility accounted under the aggregates method by recognizing as operating revenue a 20% franchise fee collected from franchise taxis and as operating expense a 16.7% business partnership fee paid to taxis.
The Financial Supervisory Service determined this approach was wrong. It said the net method should be applied, recognizing as operating revenue only 3.3%—the franchise fee minus the business partnership fee—rather than the entire 20% franchise fee. Based on the FSS audit results, the Financial Services Commission (FSC) imposed a penalty surcharge of 346.2 million won on the former CFO, recommended dismissal, and ordered a six-month suspension.
The court accepted the financial authorities' view on the accounting method. The panel saw the franchise agreement and the business partnership agreement not as separate transactions but as a single, connected contract structure. It found that the activity expenses paid under the business partnership agreement were in substance consideration paid to the franchisee, and thus accounting that increased both operating revenue and operating expense without deducting these from revenue violated accounting standards.
However, it did not recognize the "gross negligence" that formed the core premise of the sanctions. The panel noted that corporate accounting standards require determining revenue presentation by comprehensively assessing the economic substance of individual transactions, leaving room for differing interpretations even among experts. It said it was hard to conclude that the former CFO's application of the aggregates method was plainly erroneous accounting, and that merely not choosing the net method did not amount to gross negligence.
The panel also considered the characteristics of a new business. It said a company operating in a field without well-established accounting practices or precedents has little choice but to select an approach that appears reasonable at the time, and absent a clear motive for violation, there is considerable room to assess the matter as ordinary negligence.
The court also rejected the FSC's claim that Kakao Mobility intentionally chose the aggregates method to boost corporate value ahead of listing. The panel found that while revenue and expense were both overstated, the impact on other financial indicators was limited, and there was insufficient evidence that information was concealed from investors.
The panel viewed the personnel measures, including the recommendation for dismissal, as excessively heavy. It said it was hard to find that the former CFO had seriously breached a duty of care, and noted that, having accepted the FSS audit results, the company restated and disclosed its 2020–2022 consolidation financial statements under the net method, thereby substantially achieving the public interest of ensuring accounting transparency.
The panel said, "The sanctions are so excessive relative to the nature of the violation that they are markedly unreasonable by social standards," and ruled, "Each disposition is unlawful and must be revoked."