Kim Beom-su, the billionaire founder of Kakao has been arrested on allegations of stock manipulation. This arrest is connected to Kakao’s acquisition of a stake in SM Entertainment, a K-pop agency.
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Kakao has been expanding its business portfolio to establish itself as a major player in the South Korean and global entertainment industry.
The acquisition of SM Entertainment was seen as a strategic move to strengthen Kakao’s presence in the K-pop industry.
K-pop is a multi-billion dollar industry with a massive international fan base. It is a critical component of South Korea’s cultural export strategy.
SM Entertainment is one of the largest and most influential K-pop agencies managing famous artists such as Girls’ Generation, NCT and Aespa.
Kim Beom-su is accused of manipulating SM Entertainment’s stock prices to prevent a takeover by Hybe Corporation.
Prosecutors allege that Kim colluded with a private equity fund to purchase approximately 240 billion won ($173 million) worth of shares to inflate the stock price.
Hybe, the company behind the global sensation BTS had expressed interest in acquiring SM Entertainment by buying a 14.8% stake.
The alleged stock price manipulation by Kakao led to Hybe withdrawing its bid as the shares became too expensive allowing Kakao to secure a controlling stake of nearly 40%.
Last year, Kakao’s Chief Investment Officer, Bae Jae-hyun was on similar charges related to this stock manipulation case.
Kakao Corp was founded in 2006 by Kim Beom-su and also known as Brian Kim. Since its inception, the company has grown from a messaging app into a tech giant with a diverse portfolio of services including online banking, ride-hailing, music streaming and more.
The company’s flagship product, KakaoTalk launched in 2010 quickly became South Korea’s most popular messaging app.
As of December, KakaoTalk reportedly had 41 million active users in South Korea, a nation with a population of 52 million.
From 2011 to 2022, the company completed 13 acquisitions with an average acquisition cost of $546 million.
Prosecutors allege that Kim Beom-su orchestrated and approved schemes to manipulate the stock price of SM Entertainment.
This manipulation aimed to hinder a competitor, Hybe Corp from acquiring SM Entertainment. It is alleged that Kim Beom-su collaborated with the operator of a private equity fund to inflate SM Entertainment’s stock price.
The intent was to prevent Hybe, the company behind global K-pop sensation BTS from successfully acquiring SM Entertainment.
Reports suggest that Kakao purchased KRW 240 billion (approximately $174 million) worth of SM Entertainment shares through 553 trades in February 2023.
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This purchase allegedly drove the share price above Hybe’s tender offer price of 120,000 KRW per share leading to Hybe withdrawing its offer.
The Seoul Southern District Court issued an arrest warrant for Kim Beom-su on July 22, 2024 citing concerns about evidence destruction and flight risk.
Following the court’s decision, Kim Beom-su was arrested and is being held at the Seoul Nambu Detention Centre.
The arrest is for up to 20 days during which prosecutors will investigate further before deciding on formal charges.
Kim Beom-su has denied all allegations asserting that he never ordered or tolerated any illegal activities. Kakao also released a statement defending Kim stating that the accusations are not true.
Kim Beom-su was arrested following the issuance of a warrant by the Seoul Southern District Court. While Kim has not been formally charged yet, his detention allows prosecutors to question him and gather more evidence regarding the allegations.
Kim Beom-su has denied any wrongdoing and claims that he never instructed or condoned any illegal activities related to the stock manipulation.
Following Kim Beom-su’s arrest Kakao’s shares plummeted by more than 5%. The company’s stock has already lost a third of its value this year due to various challenges including regulatory scrutiny and market competition.
Kakao has faced increasing regulatory scrutiny as it expands into various sectors including fintech, ride-hailing and online shopping.
The allegations, if proven could affect Kakao’s control over its online banking arm, KakaoBank Corp. South Korean financial regulations prohibit individuals convicted of financial crimes from owning more than a 10% stake in a bank.
Kim Beom-su’s conviction could lead to a restructuring of Kakao’s ownership in KakaoBank.
Kim Beom-su’s net worth, once estimated at over $13 billion has dwindled to around $3.6 billion due to the company’s struggles and the fallout from the legal issues.
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