Ku Young-bae, right, founder and CEO of Singapore-based Qoo10, speaks during a National Assembly hearing on TMON and WeMakePrice's liquidity crisis, in Seoul, Tuesday. Yonhap

Ku Young-bae, the embattled founder and CEO of Singapore-based Qoo10, who is at the center of a snowballing payment and refund delay crisis involving two Korean e-commerce platforms, vowed to offer "everything I have" to address the severe cash crunch facing the companies.

Appearing at a National Assembly hearing on Tuesday, Ku apologized to the affected businesses, partner companies and consumers of TMON and WeMakePrice for failing to repay the vendors using their services.

This marked Ku's first public appearance since the payment delay issue erupted at WeMakePrice on July 8.

According to the Ministry of Economy and Finance, the unpaid bills identified so far are estimated at about 210 billion won ($152 million), but the amount is feared to escalate, with some speculating the figure to rise to 1 trillion won. Many consumers who purchased products and services through these platforms are also facing delays in receiving their refunds.

When asked about the amount of funds and personal assets that can be mobilized, Ku said, "The (Qoo10) group can mobilize 80 billion won. However, it is uncertain whether all of this amount can be used (to resolve the issue)."

Ku said revenues generated by the two platforms were used mostly on promotional activities amid a price-cutting war with rivals.

He also said, "I have put all my assets into the company. When the company's stock value was high, it was valued at up to 500 billion won."

He then slurred the end of his sentences, suggesting uncertainty about how the equity collateral situation will ultimately play out.

Ku acknowledged that funds from the two online marketplaces were used to pay for the acquisition of Wish, the global online shopping mall based in North America and Europe, in February.

"The cash used for this payment amounted to $45 million, and funds from TMON and WeMakePrice were temporarily mobilized but were repaid within a month," he said, asserting that he believes this payment is unrelated to the delays in the two firms' payments to sellers and refunds to customers.

The two firms filed for corporate rehabilitation the previous day, saying their financial condition cannot be restored through self-rescue measures.

Financial Supervisory Service Governor Lee Bok-hyun, right, speaks during a National Assembly hearing on TMON and WeMakePrice's liquidity crisis in Seoul, Tuesday. Yonhap

The Ministry of Justice imposed an overseas travel ban on Ku, while the Seoul Central District Prosecutors' Office set up a special investigation team to look into suspected irregularities related to the incident.

During the Assembly hearing, Financial Supervisory Service (FSS) Governor Lee Bok-hyun said there were already "strong signs of illegal activities" detected during the financial authorties' fund-tracing process.

"We dispatched nearly 20 investigators to the prosecutor's office. We will also cooperate with the Fair Trade Commission to the fullest extent possible," Lee said.

Lax regulations

The situation has highlighted problems with lax regulations and oversight by financial authorities in the rapidly growing e-commerce industry.

Critics argue that regulations have failed to keep pace with the industry's growth, as the transaction volume of online marketplaces has surged approximately 340-fold over 20 years — from 660 billion won in 2000 to about 227 trillion won last year.

Insufficient supervision by financial authorities has also been criticized for contributing to the liquidity crisis at the two firms.

Criticism is focused on the lack of regulations regarding the management of the settlement cycle, which refers to the time it takes for platform operators to repay sellers, and settlement funds, which pertain to the amounts owed to the sellers.

Since there are no clear regulations defining the settlement cycle, it varies significantly by company, ranging from a minimum of one week to a maximum of two months.

According to industry officials, TMON and WeMakePrice had a settlement cycle of approximately 70 days.

However, this is merely an internal policy set by the platforms, and even if it is violated, there are no legal means to enforce it or protect the sellers.

This leaves sellers in a situation where they have no choice but to wait for the platforms to make payments properly.

Also, there is no way to regulate the settlements made by platform operators even if they use the funds to repay their debts or spend the money elsewhere.

This was evidenced by Ku's acknowledgement that TMON and WeMakePrice's funds were used to acquire Wish.

Financial authorities are now discussing the mandatory use of an escrow system enabling settlement funds to be entrusted to a third-party financial institution and paid out promptly to sellers. But skeptics say this is a belated measure.

Additionally, the lax supervision by authorities has been criticized, as it was revealed that they did not take proactive measures despite identifying issues with the capital and solvency ratios of the two companies two years ago.

At the time, the authorities only signed non-binding management improvement agreements with the two firms.

In response to the criticism, the FSS governor said, "We apologize for falling short of our supervisory responsibilities," and added that his agency will discuss measures to improve related systems.