150 Billion KRW of Company Funds Misused for Unintended Purposes
Skin&Skin Files 1 Billion KRW Claim Against Former CEO and Others
"Duty of Care as Administrator Neglected... Kim Jaehyun Group Left Unattended"
Skin&Skin, a KOSDAQ-listed company, won a partial victory in the first trial after filing a lawsuit for damages against its former CEO and board members at the time in relation to the 'Optimus Fund redemption suspension incident.'
According to the legal community on the 21st, the Civil Division 13 of the Seoul Eastern District Court (Presiding Judge Choi Yong-ho) ruled earlier this year in a 1 billion KRW damages lawsuit filed by Skin&Skin against seven board members, including the former CEO and inside and outside directors, ordering six of them, excluding auditor Mr. B, including former CEO Mr. A, to jointly pay 1 billion KRW.
Previously, Kim Jaehyun, CEO of Optimus Asset Management, and his associates embezzled 15 billion KRW of Skin&Skin’s funds in June 2020 and used it to prevent the suspension of redemption of the Optimus Fund. They promoted that they would operate the Optimus Fund stably, but the actual investment funds were used for purchasing private bonds or for circular financing of the fund. Eventually, the fund redemption suspension incident occurred, causing damages of around 500 billion KRW to about 1,000 investors.
Subsequently, Skin&Skin claimed that "CEO Kim and his associates deceived the company by making it appear that the 15 billion KRW was used as an advance payment for the mask distribution business. The board of directors, which approved the advance payment agenda without proper review, should be held responsible," and filed a damages claim against the board members at the time.
The first trial sided with Skin&Skin. The court first cited past Supreme Court precedents stating that "a corporate director is not only to express opinions on board agendas, but also has a duty to oversee the overall execution of business. If they neglect this duty despite suspicion of illegality, they cannot avoid liability for damages to the company."
The court added, "Although some board attendees left the meeting expressing opposition by saying 'further review is needed,' the resolution was hastily made," and said, "the resolution was passed without substantive review, and as a result, 15 billion KRW, which corresponds to most of Skin&Skin’s cash assets, was misappropriated as repayment funds for the Optimus Fund according to the intentions of CEO Kim and others."
However, the court did not recognize the liability of Mr. B, the auditor at the time, stating that "there is insufficient ground to find that he failed to fulfill the duty of care as a faithful manager." The court noted, "Mr. B suspected illegal acts in overall management and took measures such as convening an emergency board meeting, exercising the right to inspect and copy accounting books, and filing a criminal complaint. The audit and criminal complaint appear to have triggered the full-scale investigation into the embezzlement."
Furthermore, the court pointed out that Mr. A, who led the agenda to be hastily approved in collusion with CEO Kim’s side, should bear 90% of the compensation amount. In fact, Mr. A was sentenced to five years in prison after being found guilty of embezzlement under the Act on the Aggravated Punishment of Specific Economic Crimes.
Meanwhile, separately from this trial, Skin&Skin filed a 18 billion KRW damages claim against the Optimus corporation, demanding compensation for embezzled funds and delayed damages. The first trial of this case dismissed Skin&Skin’s claim last year on the grounds that "if Skin&Skin had exercised even a little caution, it could have known that the mask payment transactions were not related to Optimus’s business execution but were illegal acts by CEO Kim and others."
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