South Korea's tech landscape was shaken on Tuesday as prosecutors arrested Kim Beom-su, the founder of Kakao Corp., on allegations of stock price manipulation. This dramatic development comes amid the high-stakes corporate battle involving the takeover of the K-pop agency SM Entertainment, a case that has significant implications for the nation's entertainment and technology sectors.
The Seoul Southern District Court approved an arrest warrant for Kim, citing concerns that he might flee or destroy evidence. Prosecutors now have up to 20 days to investigate the 58-year-old billionaire and decide whether to indict him. According to a senior prosecutor, who requested anonymity due to the ongoing investigation, Kim is accused of orchestrating and approving schemes to inflate SM Entertainment's stock price during Kakao's takeover bid to thwart a competing offer from Hybe Corp., the parent company of global sensation BTS.
Kim Beom-su, also known as Brian Kim, has denied the allegations. In a recent statement, Kakao reiterated Kim's innocence, asserting that he had "never instructed or condoned any illegal acts." Despite this, the arrest marks a significant blow to Kim and his company. Kakao's shares dropped more than 5% following the news.
The controversy centers around Kakao's acquisition of a controlling stake in SM Entertainment, which culminated last year after a fierce bidding war with Hybe. Prosecutors allege that Kim and other Kakao executives artificially drove up SM's stock price to over $86.50 per share, the price at which Hybe was purchasing shares from investors. Kakao allegedly spent approximately $173 million on SM shares at these inflated prices to derail Hybe's takeover attempt.
The case has also led to the indictment of another Kakao executive and the head of the private equity fund involved in the scheme. Kakao's move to secure a majority stake in SM Entertainment had been framed as a "friendly" takeover, with SM's top executives supporting Kakao over Hybe, which they described as a hostile bidder. The executives argued that a Hybe takeover would monopolize the industry and increase costs for fans, while potentially sidelining SM's artists.
Kakao, a tech giant best known for its popular messaging app Kakao Talk, has expanded into various sectors, including banking, online shopping, gaming, and entertainment. The company's diversification strategy has been a significant factor in its growth, with the messaging app alone boasting about 41 million active users in South Korea, a country of 52 million people.
Despite the current turmoil, Kakao stated that it would strive to minimize the management gap caused by Kim's arrest. However, the incident underscores the challenges the company faces as it navigates the fallout from these legal issues. The tech conglomerate's recent history includes notable acquisitions aimed at strengthening its position in the cybersecurity and entertainment industries, such as the purchase of cybersecurity firm Mandiant for $5.4 billion in March 2022.
Kim Beom-su's net worth, estimated at $3.3 billion by Forbes, places him among South Korea's wealthiest individuals. However, his fortune has seen a decline from $4.5 billion earlier this year. The billionaire's journey began with the founding of Kakao, which evolved from a messaging app into a "super app," offering services ranging from payments to grocery orders and taxi hailing. Kakao Entertainment, a subsidiary formed in 2021, encompasses TV, film, music, and webtoon comics studios, and operates South Korea's largest music streaming service, Melon.
