South Korean prosecutors said Wednesday they had requested an arrest warrant for Brian Kim, founder of South Korean internet giant Kakao, as part of an investigation into alleged stock market manipulation in connection with a massive bid to acquire SM Entertainment, one of the country's biggest music labels, in 2023.
The warrant came a week after Seoul prosecutors launched an investigation into Kim's involvement in the SM Entertainment stock manipulation scandal.
Kakao did not respond to a request for comment prior to publication.
In March 2023, Kakao and its subsidiary Kakao Entertainment won a bidding war for a 39.9% stake in the K-pop label, becoming the controlling shareholder of SM Entertainment. Kakao was competing with Hybe, the owner of South Korean music agency BigHit, which is known for signing popular K-pop boy band BTS. Kakao began its bid to buy SM Entertainment shares at 150,000 won ($115) per share, beating Hybe’s previous bid of 120,000 won ($87) per share.
A tender offer is when a company goes directly to the shareholders of a target company and offers to buy their shares within a set period of time. The purpose of a tender offer is usually to gain control of the target company, and the success of such an offer often depends on the buyer acquiring a certain percentage of the shares.
South Korean prosecutors suspect that SM Entertainment's stock price was manipulated just before the deal was finalized. Kakao is accused of purchasing 240 billion won (about $174 million) worth of SM Entertainment stock in 553 transactions in February 2023. This reportedly drove the company's stock price higher than Hybe's acquisition offer price of 120,000 won per share, causing Hybe to withdraw its acquisition offer.
Kakao is also being criticized for failing to report its large-scale stock purchases to financial authorities.
Kakao's chief investment officer, Bae Jae-hyun, was arrested in October on charges of stock price manipulation after the acquisition and is currently on trial.
Since Kakao acquired SM Entertainment in March, Hybe has sold some of its shares in the company to Kakao, reducing Kakao's stake from 15.8% to 8.8%.
Founded in 2006, Kakao is one of the largest Internet companies in South Korea. It operates the popular messaging service KakaoTalk, on-demand taxi service Kakao Mobility, online banking platform Kakao Bank, music streaming service Melon, and comics hosting platform Kakao Webtoon.
If Kakao's chief information officer and other executives at Kakao Entertainment are found to have violated the Capital Markets Act and face punishment greater than a fine, the Financial Supervisory Service could force Kakao to sell more than 10% of its stake in its online banking subsidiary Kakao Bank.
According to South Korea's online banking regulations, in order to secure more than 10% of voting rights in a mobile-only bank, a non-financial company must not have violated financial laws, including the Capital Market Act, or the Monopoly Regulation and Fair Trade Act in the past five years.
