Moon's Orbit Defined by Gravity

NEW YORK (HedgeWorld.com)--John W. Moon evidently hopes to join Carl Icahn in the small club of U.S. hedge fund managers shaking up the established ways of doing business in South Korea.

Mr. Moon is the prime mover behind the Gravity Committee for Fair Treatment of Minority Shareholders, formed in hopes of protecting the rights of minority shareholders of Gravity Co. Ltd., Seoul, a designer of web-based video games.

In a filing with the Securities and Exchange Commission Tuesday [March 28] relating to American Depository Shares representing shares of common stock in Gravity, Mr. Moon explained the reasons for his view that he and other minority shareholders need to be more assertive about their rights. Gravity isn't a large company (it has a market capitalization of about $200 million), but it does own the rights to a popular comic-book-based game, known as Ragnorak Online.

Therein lies a tale. Ragnorak Online has been licensed to a Japanese concern, Gung Ho Online, which is jointly controlled by investor Taizo Son and Softbank Corp. They aren't at arms length from one another; the chairman of the board of Softbank is Masayoshi Son, Taizo Son's brother. Also, 52% of the interest in Gravity Co. is held by Taizo Son and Softbank, so the Son/Softbank group is essentially licensing the rights of a Korean firm it controls to a Japanese firm it also controls.

Gung Ho's license for Ragnorak expires in August, and Mr. Moon wrote in the SEC filing that his committee is concerned that the negotiations will be fraught with conflicts of interest, and that the majority will accept a lowball licensing fee in order to serve its own (Japanese-based) interests at the expense of the stock price and, accordingly, at the expense of the minority. The committee proposes to:

oHold discussions with holders of common stock in Korea, with the possible future inclusion of these holders in the committee;

oConsider converting all or a portion of its own members' ADSs into common stock;

oSeek to nominate independent members to the board of Gravity to monitor the Gravity/GungHo negotiations, and to establish and oversee an auction;

oSeek to negotiate with Taizo Son an acquisition by Mr. Son or one of his affiliates of all the common stock held by the majority shareholders; or

oCommence litigation, whether in Korea, Japan or the United States.

Ragnorak is popular in markets other than Korea or Japan, Taiwan and Thailand among them. In a press release March 1,7 Gravity said that it "expects that it will be able to start the beta service of Ragranok II, the successor to Ragnarok Online ... sometime during the fourth quarter of 2006. In addition, the Company expects to begin beta testing two new games, Time N Tales and STYLIA, in the first quarter and second quarter of 2006, respectively."

Gravity also said that it's in the process of restating its income for 2005, downward, due in part to "increased expenses attributable to the investigation of irregularities relating to the diversion of royalty payments by Mr. Jung Ryool Kim, the former Chairman of the Company."

Mr. Moon is managing member of JWM Capital LLC, a Delaware company, which is the general partner of Moon Capital Management LP, which manages the Moon Capital Master Fund Ltd., Cayman Islands. The Moon group is working in tandem with another hedge fund group, Ramius Capital; together, Ramius and Moon have 13.9% holdings in Gravity shares.

The committee has retained Hannuri Partners as legal counsel in Korea. The filing also said that "certain members" of that firm have retained Schulte Roth & Zabel LLP and

Chadbourne & Parke LLP as legal counsel in the United States.

CFaille@HedgeWorld.com

Contact Bob Keane with questions or comments at bkeane@investmentadvisor.com.

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