South Korean prosecutors announced Wednesday that they have issued an arrest warrant for Brian Kim, the founder of the Korean internet giant. Cocoain connection with an investigation into alleged stock market manipulation related to a high-profile bidding war for SM entertainmentone of the largest music labels in the country, in 2023.
The arrest warrant comes a week after Seoul-based prosecutors launched an investigation into Kim’s involvement in the alleged manipulation of SM Entertainment’s stock price.
Kakao did not respond to a request for comment before publication.
In March 2023, Kakao and its subsidiary, Kakao Entertainment, became the majority shareholder of SM Entertainment after winning a bidding war for a 39.9% stake in the K-pop label. Kakao was competing with Hybe, the owner of South Korean music agency BigHit, known for signing popular K-pop boy band BTS. Kakao had launched a tender offer to buy SM Entertainment’s shares at KRW 150,000 ($115) each, eclipsing an earlier tender offer by Hybe at KRW 120,000 (~$87) per share.
A takeover bid (OPA) is a procedure by which a company approaches the shareholders of a target company directly to buy back their shares within a specified period of time. The objective of a takeover bid is usually to gain control of the target company, and the success of such an offer often depends on the buyer obtaining a certain percentage of ownership.
Korean prosecutors suspect that SM Entertainment’s stock price was manipulated just before the deal closed. Kakao is apparently accused of purchasing KRW 240 billion (approximately $174 million) worth of SM Entertainment shares in 553 transactions in February 2023. This allegedly pushed the company’s stock price above Hybe’s tender offer price of KRW 120,000 per share, prompting Hybe to withdraw its offer.
Kakao is also accused of failing to report large stock purchases to financial authorities.
Kakao’s chief investment officer, Jae-Hyun Bae, was stopped last October, following allegations of stock price manipulation after the takeover. He is currently on trial.
Following Kakao’s acquisition of SM Entertainment last March, Hybe sold part of its stake in the agency to Kakao, reducing its stake to 8.8% from 15.8%.
Founded in 2006, Kakao is one of South Korea’s largest internet companies. It operates the popular messaging service Kakao Talk, the on-demand taxi service Kakao Mobility, the online banking platform Kakao Bank, the music streaming service Melon, and the comic hosting platform Kakao Webtoon.
If Kakao’s chief information officer and other Kakao Entertainment executives are found guilty of violating South Korea Financial Market Act and face harsher penalties than a fine, the country’s financial regulator could force Kakao to sell at least 10 percent of its stake in its online banking subsidiary, Kakao Bank.
According to South Korea’s online banking regulations, to hold more than 10 percent of voting rights in mobile-only banks, non-financial companies must not have violated financial laws, such as the Capital Markets Act, or fair trade laws in the past five years.
