Major shareholders should be punished and stricter regulations on ‘shadow banking’ are needed[Editorial]

Signs containing phrases that denounce TMON and WeMakePrice are attached to the entrance of the companies’ headquarters in Gangnam-gu, Seoul on July 31. Han Soo-bin

It has come to light that TMON and WeMakePrice held a large-scale discount sale event from June to July. Just before the payment delays broke out, the companies’ card sales per day were 89.7 billion won, more than five times the usual. Ku Young-bae, CEO of Qoo10 Group, the major shareholder of the two e-commerce platforms, recently appeared before the National Assembly's National Policy Committee and explained that “TMON and WeMakePrice were in financial trouble because of the promotion,” but this does not add up. It is possible that there was an intention to siphon off the price of goods and services before the liquidity crisis festered.

There is also evidence of embezzlement from within the e-commerce platforms. Ku admitted to using some of TMON and WeMakePrice’s funds to fund mergers and acquisitions (M&A) of other companies. He claims to have borrowed temporarily and paid it back, but it is doubtful that he followed the proper procedures. It is also said that in January and April, Qoo10 borrowed 25 billion won from TMON to fund the acquisition of the U.S. e-commerce company Wish, but TMON’s approval was allegedly made two weeks later. In the end, the truth of the case must be determined, starting with whether the fraud and embezzlement of the major shareholders, including Ku, was the cause.

The government and the authorities are no less than accomplices in this case. The Financial Supervisory Service knew about TMON and WeMakePrice’s failures but turned a blind eye. The agency has been asking the companies to improve its management since 2022, but there has been no follow-up. The Korea Fair Trade Commission (FTC), which is supposed to protect consumers and prevent large companies from abusing their power, was incompetent and irresponsible. Even as consumers went directly to TMON and WeMakePrice to demand refunds and the liquidity crisis spread to more than 60,000 businesses on the platforms, the FTC Chairman Han Ki-jung said, "It is a problem of default in the private sector, so it is difficult to directly apply the Fair Trade Act."

The TMON and WeMakePrice incident is also characterized as a financial accident caused by e-commerce platforms rolling huge amounts of money without interest during a settlement period of more than two months. In this way, “shadow banking,” which operates with other people's money but is not regulated like banks, becomes a bomb the moment it goes bust, affecting the entire economy. Examples include funeral companies that take money from customers first and provide services later, cash vouchers, such as Happy Money, and prepaid top-ups at Starbucks. In addition, if real estate project financing (PF) financial products and big tech are included, the assets of the domestic non-bank financial sector amount to 1,508 trillion won. It is necessary to establish a management and supervision system for the overall shadow banking, including strengthening disclosure obligations and depositing payments.

※This article has undergone review by a professional translator after being translated by an AI translation tool.