South Korea's Supreme Court has remanded a case involving illegal political contributions by former KT Corp. executives, ordering a lower court to reconsider whether they should be held liable for damages to the company.
The Supreme Court's Third Division, presided over by Justice Noh Kyung-pil, announced Thursday that it overturned lower court rulings on the political funding law violations and sent the case back to the Seoul High Court. The ruling reverses decisions from both the first and second trials.
Minority shareholders of KT (030200) filed a damages suit against 13 current and former executives, including former Chairmen Hwang Chang-gyu and Lee Suk-chae.
Employees in KT's corporate relations division allegedly created a 1.15 billion won ($830,000) slush fund between May 2014 and October 2017 through a gift card laundering scheme. They purchased gift cards with corporate funds and resold them for cash.
Investigations found that 121 million won was distributed to 81 lawmakers between November 2014 and November 2015, followed by 314.9 million won to 83 lawmakers between January 2016 and September 2017.
Lower courts had ruled that former Chairman Hwang bore no liability, finding no evidence of legal violations or breach of duty regarding the political fund transfers. For former CEO Koo Hyun-mo, the courts acknowledged violations during his involvement but denied liability, reasoning that the returned funds had made the company whole.
The Supreme Court disagreed. The justices ruled that using corporate funds in violation of political funding laws constitutes a breach of fiduciary duty and contract obligations in itself.
The court found that former Chairman Hwang may have failed to fulfill his supervisory duties as CEO throughout the slush fund operation. Former CEO Koo may have similarly neglected oversight responsibilities from his appointment as director until the scheme ended.
The Supreme Court specifically cited Koo's criminal conviction in June 2024 for political funding law violations. It also noted that the U.S. Securities and Exchange Commission imposed $3.5 million in civil penalties and $2.8 million in disgorgement in February 2022 for violations of the Foreign Corrupt Practices Act.
The court indicated these penalties may constitute damages with substantial causal connection to the executives' breach of duties.
However, the Supreme Court upheld lower court dismissals on three other claims raised by shareholders: the overseas sale of Mugunghwa Satellite 3, contributions to the Mir Foundation, and the Ahyeon telephone exchange fire.