South Korean prosecutors said they have arrested Kim Bum-soo, the founder of tech giant Kakao, on charges of stock price manipulation. The case relates to the company’s takeover of South Korean pop music agency SM Entertainment last year.
“Kim faces allegations that he coordinated and approved schemes to cooperate with a private equity fund operator to intentionally drive up SM Entertainment's stock price to prevent Hybe Corp. from buying SM Entertainment,” according to the Associated Press.
Hybe Corp., the powerful agency behind BTS, tried to buy a 15% stake in SM Entertainment that its estranged founder Lee Soo-man was selling. But Hybe was thwarted by resistance from SM Entertainment management and a larger offer from Kakao and its allies.
Kim (also known as Brian Kim) has denied the charges, according to the Seoul prosecutors' office, which also said another Kakao executive and the head of a stock fund have already been charged in the same case.
Prosecutors say they sought the arrest warrant out of fear that Kim would flee or destroy evidence. They have 20 days from his arrest Tuesday to file charges.
Kim has not commented since his arrest. But last week, after a staff meeting, Kakao issued a statement saying: “The allegations are untrue. I did not order or approve any illegal actions.”
SM is Korea's second-largest music talent agency and is behind musical acts including Super M, Aespa, BoA, Red Velvet, Girls' Generation, H.O.T., EXO, Super Junior, SHINee, and NCT Dream.
While Hybe dropped its bid to take control of SM Entertainment in March 2023, after a short and bitter skirmish, it has continued to complain about the mechanics of Kakao’s takeover. In April 2023, prosecutors raided SM Entertainment’s offices looking for evidence of stock price manipulation.
Kakao, which among other things runs the KakaoTalk messaging platform and South Korea’s dominant gaming business, could be hit hard if Kim is later indicted or convicted, finance industry sources say. They say the case could jeopardize its banking subsidiary, expansion into artificial intelligence and overseas expansion.
After a share price drop on Tuesday, followed by a partial recovery early Wednesday, Kakao shares are trading at 39,650 won, valuing the group at 17.5 trillion won ($12.6 billion). Kim is said to own a 24% stake in the company.
