SEOUL – An arrest warrant was issued by a South Korea court for Kakao Chief Investment Officer (CIO) Bae Jae-hyun, on allegations of market manipulation linked to SM Entertainment’s stock value. The development cast a shadow of uncertainty over collaborative endeavours between Kakao and SM Entertainment.
“The arrest warrant was issued due to concerns about Bae destroying evidence or fleeing,” the court said.
The court dismissed arrest warrants for Kakao’s head of investment strategy, surnamed Kang, and Kakao Entertainment’s head of strategic investment, surnamed Lee.
However, the Financial Supervisory Service (FSS) announced that the criminal charges against Kang and Lee are significant, and said it will continue the investigation.
The three Kakao executives are accused of manipulating SM Entertainment’s stock price above Hybe Entertainment’s tender offer price of KRW120,000 (USD88.30) per share by investing over KRW240 billion in February, according to the FSS.
In early February, Kakao signed a partnership deal with the co-CEOs of SM Entertainment, Lee Sung-soo and Tak Young-jun, to buy a 9.05 per cent stake in the K-pop agency.
In a counterattack, founder Lee Soo-man allied with Hybe, selling his 14.8-per-cent stake in the company. Lee also filed an injunction request, calling for the court to block the deal between SM and Kakao, which was eventually approved.
In the management dispute, Hybe, the K-pop powerhouse behind global sensation BTS, went for a tender offer, offering to buy shares of SM at KRW120,000. However, this was challenged by SM’s skyrocketing share price.
In March, heated competition to take over the leading K-pop agency came to an abrupt halt, with Kakao seizing control of the label while its rival Hybe dropped its bid.
However, the investigation into Kakao manipulating SM Entertainment’s stock price has been ongoing ever since.
This is giving Kakao a hard time, as last year was also challenging for the company.
In October last year, Kakao faced a service disruption of its main product KakaoTalk due to a fire at a data centre.
Its online payment unit Kakao Pay also lost the trust of investors last year after former CEO Ryu Young-joon and seven other executives sold KRW90 billion of the payment unit’s shares only a month after Kakao Pay went public in December 2021.
Most recently, a civic organisation filed a lawsuit accusing Kakao founder Kim Beom-su and executives of Kakao’s blockchain platform Klaytn of embezzlement and other charges.
The arrest warrant issued also created uncertainty around joint projects that Kakao and SM Entertainment have already begun.
Kakao Entertainment, a subsidiary of Kakao, has been actively promoting global expansion with popular SM Entertainment artists like NCT and aespa. In August, they established a unit together in North America.
To make matters worse, the financial performance of the tech giant is far from promising.
In the first quarter, Kakao’s operating profit was KRW71.1 billion, less than half of the KRW158.7 billion in the same quarter of the previous year. In the second quarter, it experienced a 33.7-per-cent on-year decrease of KRW113.5 billion.
