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Founder of Kakao faces stock manipulation probe

(ANN/THE KOREA HERALD) – The founder of Kakao Corp., South Korea’s leading mobile messenger operator, Kim Beom-su, was summoned by prosecutors on Tuesday to address allegations of stock price manipulation linked to Kakao’s acquisition of K-pop powerhouse SM Entertainment last year.

The Financial Investigation Division 2 of the Seoul Southern District Prosecutors’ Office called Kim earlier in the day, investigating potential violations of the Financial Investment Services and Capital Markets Act.

This marked Kim’s first appearance before prosecutors in eight months, following the Financial Supervisory Service’s decision to transfer the case to the prosecution and recommend Kim’s indictment.

The tech mogul reportedly appeared for questioning away from the public eye, with prosecutors announcing his summons at an unusually early hour of 8:10 am.

The investigation focuses on allegations that Kakao and its executives manipulated SM stock prices amid a bidding war with Hybe, the parent company of BTS’ management agency BigHit. This intense competition culminated in Kakao’s victory in February last year. Kim is being questioned for his suspected role in inflating SM shares.

Accusations suggest that SM shares were artificially driven above KRW120,000 (USD86.73) per share — the fixed price at which Hybe was purchasing shares from investors.

Kim Beom-su, founder of Kakao Corp., enters the Seoul Financial Supervisory Service on October 23. PHOTO: ANN/THE KOREA HERALD SOURCE

Hybe had initially acquired a 14.8 per cent stake in SM from its founder Lee Soo-man and offered to buy additional shares from small shareholders at the same price. However, the significant rise in SM’s share price led Hybe to withdraw its takeover bid.

In March last year, Kakao and its subsidiary Kakao Entertainment secured a controlling 39.87 per cent stake in SM Entertainment.

Prosecutors allege that Kakao spent KRW240 billion (USD73 million) on SM shares, purchasing them at prices higher than Hybe’s tender offer on 553 occasions in mid-to-late February last year, intending to thwart Hybe’s bid.

Previously, prosecutors indicted Kakao’s chief investment officer Bae Jae-hyun and the company on charges of stock manipulation, along with the head of a private equity fund involved in the case. These indictments followed the Financial Supervisory Service’s referral of Kim, Bae and several other Kakao executives to the prosecution for further investigation last year.

If Kakao Corporation is sentenced to more than a fine for alleged market manipulation of SM Entertainment, it could lose its status as a major shareholder in Kakao Bank, the internet-only bank in which it holds a 27.17 per cent stake.

Financial and legal experts anticipate that the prosecution is likely to bring Kakao Corporation to trial under joint punishment regulations.