Korean Prosecutors Arrest Kakao Corp. Chief Over SM Entertainment Takeover Allegations

South Korean prosecutors said that they had arrested Kim Beom-su, the billionaire founder of tech giant Kakao, over alleged stock price manipulation. The case relates to the company’s takeover of K-pop agency SM Entertainment last year.

“Kim faces allegations that he orchestrated and approved schemes to collaborate with the operator of a private equity fund to deliberately inflate the stock price of SM Entertainment to prevent Hybe Corp. from buying SM Entertainment,” according to AP News.

Hybe Corp., the powerhouse agency behind BTS, attempted to buy a 15% share stake in SM Entertainment that were being sold by its estranged founder Lee Soo-man. But Hybe was thwarted by resistance from SM Entertainment’s management and by a richer bid from Kakao and its allies.

Kim (also known as Brian Kim) has denied the allegations, according to the Seoul prosecutors’ office, which also said that another Kakao executive and the head of an equity fund have already been indicted in the same case.

Prosecutors say that they sought the warrant as they fear that Kim may either flee or destroy evidence. They have 20 days from Tuesday’s arrest to bring charges against him.

Kim has not made a comment since the arrest. However, last week, following a staff meeting, Kakao issued a statement from him. “The allegations are not true. I have never instructed or condoned any illegal acts,” it said.

SM is the second-largest Korean music talent firm and is behind music acts including Super M, Aespa, BoA and Red Velvet, Girls’ Generation, H.O.T., EXO, Super Junior, SHINee and NCT Dream.

While Hybe gave up its bid to take control of SM Entertainment in March 2023, following a brief and bitter skirmish, it continued to complain about the mechanics of the Kakao takeover. In April 2023, prosecutors raided the offices of SM Entertainment looking for evidence of stock price manipulation.

Kakao, which among other things operates Kakao Talk, South Korea’s dominant messaging platform and games businesses, may be significantly damaged if Kim is charged or subsequently found guilty, finance industry sources say. They suggest that the case could jeopardize its banking affiliate, expansion in artificial intelligence and overseas expansion.

After a share price drop on Tuesday, followed by a partial rebound on early Wednesday, Kakao stock trades at KRW39,650, valuing the group at KRW17.5 trillion ($12.6 billion). Kim is reported to own a 24% holding.