South Korean prosecutors have officially filed an arrest warrant for Brian Kim, the founder of internet giant Kakao. The move is part of an intensifying investigation into alleged stock market manipulation linked to the high-profile 2023 bidding war for SM Entertainment, one of the nation’s premier music labels.
The Core Allegations
The warrant follows a focused probe launched by Seoul-based prosecutors regarding Kim’s direct involvement in orchestrating share price manipulation. Authorities suspect that Kakao artificially inflated SM Entertainment’s stock to secure control of the company during a fierce acquisition battle against Hybe, the agency behind BTS.
Investigators allege that in February 2023, Kakao executed 553 trades totaling KRW 240 billion (approximately $174 million) to drive SM Entertainment’s share price above the 120,000 KRW threshold set by Hybe. This maneuver successfully forced Hybe to withdraw its own tender offer, allowing Kakao to eventually acquire a 39.9% stake in the label.
Regulatory Violations
Beyond the market manipulation charges, prosecutors claim that Kakao failed to disclose these significant stock purchases to financial authorities as required by law. This lack of transparency has placed the conglomerate under severe regulatory scrutiny.
Broader Legal Consequences
The legal pressure on Kakao continues to mount. Jae-Hyun Bae, the company’s chief investment officer, was arrested last October and is currently standing trial for his role in the same takeover scandal. Following the acquisition, Hybe reduced its stake in SM Entertainment from 15.8% to 8.8% by selling a portion of its shares back to Kakao.
Impact on Kakao’s Financial Empire
The outcome of this investigation could have lasting repercussions for Kakao’s diverse business portfolio, which includes Kakao Talk, Kakao Mobility, and Kakao Bank. Under South Korea’s Capital Markets Act, a conviction involving significant penalties could force the tech giant to divest at least 10% of its ownership in Kakao Bank.
Current banking regulations stipulate that non-financial entities must maintain a clean record regarding financial and fair trade laws over a five-year period to hold more than 10% of voting rights in mobile-only banks. Kakao has not yet issued a formal comment regarding the latest development.