The founder of Kakao Corp, South Korea’s tech powerhouse, Kim Beom-su, was taken into custody on Tuesday under allegations of manipulating stock prices. The accusations relate to Kakao’s acquisition of a prominent K-pop agency, SM Entertainment, last year.
Seoul Southern District Court issued the arrest warrant for Kim, citing concerns that he might attempt to flee or tamper with evidence. This case marks the latest legal challenge for Kakao, following a trial last year involving the company and another executive over alleged misconduct during the same acquisition.
Kim, also known as Brian Kim, is widely recognized for his role in establishing Kakao Corp’s expansive empire, valued at 86 trillion won ($62 billion). Since launching the chat app in 2010, Kim has been a central figure in South Korea’s digital industry. According to industry experts, the current legal issues threaten to disrupt Kakao’s ambitions in artificial intelligence and its plans for global expansion.
Prosecutors allege that Kim was involved in inflating SM Entertainment’s stock price in February last year, using a private equity fund to purchase around 240 billion won ($173 million) worth of shares. This maneuver purportedly aimed to prevent rival entertainment agency Hybe Corp from acquiring the K-pop giant. Following this, Hybe withdrew its bid for a 14.8 percent stake in SM Entertainment, allowing Kakao to secure nearly 40 percent of the agency.
Kim and Kakao’s legal team have denied the allegations, stating that Kim never authorized or condoned illegal activities. The case has already seen Kakao’s Chief Investment Officer, Bae Jae-hyun, indicted on similar charges.
Kim Beom-su, with a 24% stake in Kakao Corp, is currently detained at the Seoul Nambu Detention Centre. Under South Korean criminal procedure, Kim can be held for up to 20 days while prosecutors investigate the stock price manipulation allegations.
The implications of this case could impact Kakao Corp. If Kim is convicted, it could jeopardize Kakao’s control over its online banking subsidiary, KakaoBank Corp, as financial regulations prevent individuals convicted of financial crimes from holding more than a 10% stake in a bank. Furthermore, the company will likely face increased regulatory scrutiny, potentially hampering its AI development and international expansion plans.
Kakao’s shares fell more than 5% following the news of Kim’s arrest, adding to the 24% decline experienced earlier this year. The company plans to launch new AI services and has already seen its market value decrease substantially. The arrest has dealt a severe blow to Kakao, which has struggled with regulatory issues and operational setbacks in recent years.
Kim, celebrated for his rise from modest beginnings to becoming one of South Korea’s leading tech figures, has seen his net worth drop to $3.6 billion amid Kakao’s recent challenges. His initial success with KakaoTalk and the subsequent growth of Kakao into a major tech conglomerate has been overshadowed by this legal turmoil, which could mark a critical period for the company’s future.
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