[Edaily Marketin JI YEONG-EUI YunJi Kim Soyoung Park Reporters] On the afternoon of January 25, 2022, a massive sum of 5 billion won was deposited into the account of “CashCow,” a receipt rewards service provider. The funds were sent by ISTN, which was in negotiations to acquire CashCow’s core business. However, at the time, CashCow’s shareholders had not yet agreed to the sale, and the main contract for the business transfer had not even been signed.

The funds, deposited unexpectedly without following formal procedures, were soon withdrawn from the company’s account under suspicious circumstances. Between 3:37 p.m. and 3:40 p.m. on the day of the deposit—a span of just three minutes—a total of 2.2069 billion won was transferred in five separate transactions from Cash Cow’s account to the personal account of CEO Seol Mo. The following day, approximately 2 billion won flowed back to ISTN, the company that had originally deposited the funds.

This means that more than 80% of the 5 billion won in business sale proceeds—which had been received without shareholder consent—was transferred out to the CEO’s personal account and ISTN in just two days. Cash Cow shareholders filed a lawsuit against CEO Seol for breach of trust and embezzlement, calling these transactions “illegal,” and a legal battle ensued. Currently, the allegations of breach of trust and embezzlement at Cash Cow have been referred to the prosecution, and an investigation is underway.

CashCow, Which Had Planned to Go Public Within a Few Years, Suddenly Pursues a Business Sale

To understand the background behind the suspicious movement of 5 billion won, we must first examine how CashCow’s growth strategy abruptly shifted from an initial public offering (IPO) to

a

business

sale

. CashCow had initially presented a vision to its shareholders to raise its corporate value by attracting external investment and then list on the stock market. At the 2019 shareholders’ meeting, CEO Seol explained the status of attracting strategic investors (SIs), such as BSG Partners, and expressed his intention to pursue an IPO around 2021; he reaffirmed these listing plans at the 2021 shareholders’ meeting as well. CEO Seol’s statements regarding the IPO are documented in the recorded minutes of the shareholders’ meetings.

However, as the company’s management structure changed, its listing plans also faltered. Those who had co-managed the company since the days of E&B Soft—the predecessor to Cash Cow—were excluded from management, and conflicts deepened starting in 2021 as CEO Seol began making independent operational decisions based on his authority as CEO. The shareholders who filed a complaint against CEO Seol claim that the company’s financial situation also deteriorated around this time. In fact, by January 2022, when the disputed 5 billion won was received, Cash Cow was already in a state of negative equity. It was determined that, as of 2021, the company had recorded a loss of 3.86 billion won.

Furthermore, contrary to the promise of an IPO that had been publicly stated for years, CEO Seol began pushing to sell off Cash Cow’s core business. Starting in 2021, CEO Seol pursued a business transfer to transfer Cash Cow’s core business rights to ISTN. ISTN was already a major investor in Cash Cow, having invested approximately 2 billion won and holding redeemable convertible preferred shares (RCPS). At the time, the sale price for the business rights—discussed behind the scenes under CEO Seol’s leadership—was estimated to be between 10 billion and 13 billion won.

The existing co-management team and some shareholders immediately objected. They argued that the valuation was excessively low compared to the company’s value recognized during previous funding rounds and the growth projections presented on the premise of an IPO. In early 2022, CEO Seol set out to persuade shareholders by proposing a business transfer price of approximately 13 billion won. During this process, allegations were submitted to investigative authorities claiming that CEO Seol had offered to pay a “certain sum” to some shareholders in exchange for their agreement to secure the consent of other shareholders.

Amid fierce opposition from shareholders, the funds began to arrive. On January 25, 2022, ISTN made an advance payment of 5 billion won to Cash Cow as a down payment. Based on a synthesis of materials provided by the complainants and statements made by CEO Seol to investigative authorities, it appears that the two companies discussed a structure whereby this money would be applied toward the purchase price if a business transfer agreement were eventually signed, and would be returned to ISTN if the transaction ultimately fell through. The business had not yet been sold, nor had the sale price been finalized. From Cash Cow’s perspective, while it had secured 5 billion won in cash, this was also money that would have to be repaid in full if the deal fell through. In other words, it was funds that were recorded as liabilities on the company’s books and were subject to a custody obligation.

Leaving the company with a 5 billion won debt... while the CEO recouped the funds

CEO Seol is under suspicion of arbitrarily using that money, which was classified as a “liability” subject to a repayment obligation. On the very day the 5 billion won was deposited, 2.2069 billion won was transferred from Cash Cow’s account to CEO Seol’s personal account. The plaintiffs claim that a significant portion of this amount was used to repay personal debts that CEO Seol owed to Cash Cow. They point out that immediately after the company assumed the burden of repaying the 5 billion won to an external party, the CEO prioritized recovering his own debts. If the business transfer had been properly completed and the company had received the sale proceeds, the use of those funds could have been largely recognized as falling within the realm of business judgment. However, at that time, not only had no resolution been passed at the shareholders’ meeting, but the main business transfer agreement had not even been signed.

It is understood that during the police investigation, CEO Seol stated that he did not take the money for personal use, but rather that it temporarily passed through his account to be deposited where ISTN had requested during the business transfer negotiations. However, the shareholders’ claims differ. They argue that nowhere in the agreements or contracts related to the business transfer was there any provision stating that CEO Seol’s personal account would be used as an escrow account. In fact, it is believed that a portion of the funds was subsequently used, via another corporation, for CEO Seol to purchase ISTN shares.

The day after approximately 2.2 billion won was transferred out of CEO Seol’s personal account (January 26), another 2 billion won was withdrawn from Cash Cow’s account and transferred to ISTN. Shareholders view this transfer as Cash Cow returning the original investment principal under the pretext of redeeming the Redeemable Convertible Preferred Shares (RCPS) in which ISTN had invested. At the time, ISTN was not only a major investor in Cash Cow but was also pursuing the acquisition of its core business. Critics point out that, just one day after transferring 5 billion won under the guise of proceeds from the business sale, ISTN appears to have recouped the 2 billion won it had previously invested.

If, as the shareholders claim, the 2 billion won in question was used to redeem the RCPS investment, questions remain regarding the appropriateness of the redemption process. According to Cash Cow’s articles of incorporation, the redemption of preferred stock was permitted only when the company had distributable profits, and upon receiving a redemption request, the company was required to notify preferred shareholders of △ the fact of the redemption request and △ the number of shares and amount eligible for redemption.

The police, who launched an investigation into the Cash Cow allegations, found potential legal violations in the act of imposing a 5 billion won burden on the company and in the subsequent circumstances surrounding the use of those funds. The assessment is that if Cash Cow—despite being in a state of negative equity at the time—received 5 billion won prior to signing the main contract, thereby incurring a repayment obligation, and then used that money primarily as the CEO saw fit—such as to repay personal debts and support the recovery of ISTN’s investment funds—this could constitute breach of trust, as it benefited the CEO while causing harm to the company. The police referred the case to the prosecution on charges of breach of trust and embezzlement after comprehensively reviewing all relevant circumstances regarding the company’s subsequent use of funds.

CEO Seol first denied the premise that the 5 billion won sent by ISTN was a down payment for a business transfer agreement. CEO Seol explained, “At the time, the business transfer agreement had not been signed; we were still in the stage of continuing discussions at the level of a Memorandum of Understanding (MOU).” He added, “Due to the company’s financial difficulties caused by the COVID-19 pandemic, the funds were provided as financial assistance by ISTN, which was an existing shareholder. Since the 5 billion won was deposited in error, we immediately returned 2 billion won the next day, so the actual amount that entered the company was 3 billion won.”

Regarding the fact that approximately 2.2 billion won of the 5 billion won was transferred to his personal account, he clarified that it was repayment of a debt he had lent to the company. CEO Seol said, “Since I had such a large amount owed to me by the company, I accounted for it as a repayment (using the ISTN funds),” adding, “I did not use it personally; I placed it in an external escrow account. Later, when discussions regarding the business transfer fell through, I returned the funds to the company and subsequently returned them to ISTN.”

He also denied claims that 2 billion won was used to redeem ISTN’s Redeemable Convertible Preferred Shares (RCPS). CEO Seol countered, “There was no redemption of the preferred shares held by ISTN, and they remain shareholders to this day,” adding, “At the time, the company was operating at a loss and could not have met the requirements for preferred share redemption (dividend eligibility) in the first place.”

However, ISTN’s position differed from that of Cash Cow. ISTN maintains that the 5 billion won deposited with Cash Cow was a down payment under the business transfer agreement, and that the 2 billion won returned the following day was also unrelated to the repayment of the existing RCPS investment. In other words, the “5 billion won” deposited with Cash Cow was clearly a down payment.

ISTN management stated, “We did have the intention of acquiring CashCow to try to revive it. So, we entered into a comprehensive business transfer agreement and paid 5 billion won as a deposit, but the situation did not allow for a comprehensive transfer. Since negotiations with the shareholders did not go well, we received the entire deposit back.” They added, “We had no further relationship with them after the deal fell through. We wrote off the entire investment in Cash Cow as a loss.”

They continued, “Even when I went to the police as a witness (in connection with the breach of trust case), I acknowledged that we had paid and then received the money, and since that matter was fully resolved, there were no further issues afterward.”

A Promising Company Plunged into Capital Erosion… 5 Billion Won in Breach of Fiduciary Duty and ‘Suspicious Transactions’

CashCow was once a company on a rapid growth trajectory, attracting funds from external investors. Its business model—collecting supermarket receipts from customers in exchange for rewards to gather purchase data—clearly resonated with the public. This was one of the factors that enabled the company to secure cumulative equity investments of approximately 4 billion won by attracting strategic investors such as BSG Partners, Shinhan Capital, and ISTN. In addition to the receipt rewards business, there are indications that the company was discussing collaborations with large corporations, such as Company E, based on customer purchase data. It also appears there were clear plans to go public to gain additional growth momentum.

A closer look at how this cash cow—which seemed poised for smooth growth—fell into capital erosion reveals several suspicious transactions. There were other transactions shrouded in suspicion besides the alleged 5 billion won breach of trust. As shareholders and former executives tracked the flow of funds between the company’s accounts and external entities , they discovered a series of tax invoices and transaction records with unclear grounds for actual expenditures. Numerous instances were also identified where the transaction amount was set first and the contract details were determined later, or where contracts were drawn up only after tax invoices had been issued.

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