The billionaire founder of South Korean internet conglomerate Kakao, Kim Beom-su, was arrested early Tuesday by a Seoul court, accused of manipulating stock prices during the acquisition of K-pop powerhouse SM Entertainment.
Founded in 2010, Kakao has grown into a sprawling empire, owning everything from a major online bank to South Korea’s largest taxi-hailing app, as well as KakaoTalk — the country’s biggest messaging app, installed on 90 percent of phones. It also boasts a vast entertainment portfolio, encompassing music labels and talent management, which it significantly augmented last year by securing a controlling 39.87 percent stake in SM Entertainment, becoming its largest shareholder.
Accusations and Arrest
Prosecutors accuse Kakao of buying 240 billion won ($173 million) worth of SM shares on 553 occasions in February 2023 at inflated prices in a deliberate effort to thwart a takeover bid by HYBE, the agency behind K-pop megastars BTS. HYBE had purchased a 14.8 percent stake from SM’s founder, Lee Soo-man, and proposed buying more shares at 120,000 won each but withdrew its attempt after SM’s stock prices soared.
The Seoul Southern District Court approved an arrest warrant for Kakao founder Kim Beom-su, citing risks of him fleeing and destroying evidence. Authorities have also questioned other Kakao executives.
Kim Beom-su’s Response
At an emergency Kakao group meeting last week, Kim expressed regret over the situation occurring while the company was working to renovate management and innovate AI-based technology. He later denied the charges, stating, “I believe the facts will be revealed in the end as I have never ordered or tolerated any illegal activities,” according to a press release sent to AFP by the company on Tuesday.
Potential Impact on Kakao
Experts have noted that the detention of the firm’s head could pose significant challenges for the company. Choi Kyoung-jin, a law professor at South Korea’s Gachon University, commented, “Kakao’s AI-based innovation will likely meet difficulty due to the absence of the head of the company, and the group will have to focus its efforts on eliminating total risk and judicial risk.” He added, “The risk of the group due to the leader being absent from Kakao will probably continue for a considerable period of time. Kakao will need to reorganize its governance.”
The arrest of Kim Beom-su marks a significant development for Kakao and could have lasting implications for its operations and strategic direction.