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Kakao’s Founder, Kim Beom-su, is accused of conspiring to inflate K-pop agency SM Entertainment’s stock price to prevent a takeover by rival agency Hybe Corporation.
Kim Beom-su Arrested in Connection with SM Entertainment Stock Scandal
South Korean prosecutors have accused Kim of working with a private investment company to buy a large number of shares, worth about ₩240 billion or US$173 million, in SM Entertainment. The purpose of buying these shares was to raise the company’s stock price and prevent a rival company, Hybe Corporation, from taking over SM Entertainment.
Hybe cancelled its offer to buy a 14.8 per cent stake in SM Entertainment after the company’s stock price jumped, enabling Kakao and its subsidiary to acquire nearly 40 per cent of the agency.
Kim, also known as Brian Kim, has denied any wrongdoing and has not been formally charged. A court official said on Tuesday that the Seoul Southern District Court approved the arrest warrant to prevent the potential destruction of evidence and because Kim was considered a flight risk.
According to a prosecution spokesperson, Kim is being held at the Seoul Nambu Detention Centre. His detention will last up to 20 days, during which prosecutors will investigate further before deciding whether to indict him, as per South Korean criminal procedure.
Kakoa Corp, A South Korean Giant Tech Company
Kakao was founded by Kim Beom-su in 2010. Kim had a 24% stake in the company and was Korea’s richest man at one point, with a net worth estimated at more than US$13 billion. However, with the recent allegations and his subsequent arrest, his personal wealth and the value of his stake in Kakao could be significantly affected.
Kim launched KakaoTalk, a free mobile instant messaging application for smartphones with text and call features, in 2010. Since then, it has become the country’s most popular messaging app, amassing 48.2 million Korean users as of 2024. The company made an annual revenue of US$1.5 billion by the end of 2023.
Kakao has evolved into a sprawling corporate empire valued at more than $12 billion, with a business portfolio spanning taxi-hailing services, online banking, online shopping, entertainment management and merchandise stores.
Aljazeera reports that Kakao’s shares dropped more than 5 per cent following the news of Kim’s arrest. Additionally, the outcome of any case against Kim could jeopardise the Kakao group’s control of the online bank arm KakaoBank Corp since the country’s financial rules restrict those convicted of financial crime from owning more than a 10% stake in a bank. This potential loss of control could significantly impact Kakao’s future business decisions and operations.
Kakao is also likely to be subject to regulatory scrutiny, making it more challenging for the company to make major decisions on investments in artificial intelligence (AI) and overseas business expansion, industry experts told CNN. The company plans to introduce new AI services this year, but regulatory scrutiny could potentially hinder these plans and the company’s future growth.
