Antitrust regulator refers K Cube Holdings to prosecution

Kakao founder Kim Beom-su speaks during a parliamentary audit held at the National Assembly on Oct. 15. [NEWS1]

The antitrust regulator decided to refer K Cube Holdings, a company wholly owned by Kakao founder Kim Beom-su, to the prosecution over allegations of illegally executing its voting rights to Kakao companies, violating the Fair Trade Act.

Founded in 2017, K Cube Holdings is considered a de facto holding company of Kakao.

It owns 10.51 percent of Kakao as the second-largest shareholder following Kim — who has a 13.27 percent ownership — and also holds 0.91 percent of Kosdaq-listed Kakao Games.

The Fair Trade Commission (FTC) on Thursday said that K Cube Holdings violated the Fair Trade Act by executing its voting rights as a stockholder of Kakao and Kakao Games despite being subject to limitations on mutual investments.

According to the Fair Trade Act, a financial or insurance company belonging to an enterprise group subject to mutual investment regulations cannot practice its voting rights on its affiliated companies, due to the principle of so-called "separation of industrial and financial capital."

The regulation was designed to prevent corporate owners from using money made by financial or insurance businesses to strengthen their control over non-financial affiliates or for the purpose of management succession.

Kakao companies have been subject to the restriction since 2019.

K Cube Holdings exercised its voting rights to Kakao 14 times since 2020, and 11 times to Kakao Games, according to the FTC.

The antitrust watchdog explained that K Cube Holdings cannot be defined as a holding company by legal standards, as it is not the largest shareholder.

Instead, the FTC concluded that K Cube Holdings is a financial company, because over 95 percent of the revenue it made over the last two years came from dividends and return on investments, which makes the company subject to the mutual investment regulations.

K Cube Holdings immediately countered, arguing that it is not a financial company.

“K Cube Holdings is not a financial company in legal terms,” the company said in a release Thursday.

“K Cube Holdings acquired Kakao shares with its own assets, and is only a consumer of financial products as any other regular companies that operate and manage their assets, which makes it irrelevant to the fundamental characteristics of a financial firm that runs a business based on capital funded from third parties.”

K Cube Holdings said that it will take legal action against the FTC’s decision.

Kakao first came under fire last year for allegedly omitting information on K Cube Holdings including information on Kim’s relatives' roles in the de facto holding company, as well as business relations between Kakao and its affiliates.

K Cube Holdings used to be run by seven staff members, five of whom were related to Kim — his wife, his brother and his children. Kim’s two children left the company in Sept. 2021 after the accusations threw the company into the spotlight.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]