[NEWS IN FOCUS] Kakao founder probe sends shock waves across affiliates

Kim Beom-su, the former chairman of Kakao, leaves after nearly 16 hours of questioning by the Financial Supervisory Service on Tuesday related to suspicions of stock manipulation concerning the acquisition of SM Entertainment's shares. [YONHAP]

With the founder of Kakao under investigation for alleged stock manipulation, the regulatory risk has reverberated across other affiliates such as Kakao Bank and Kakao Mobility.

The tech company's founder and largest shareholder, Kim Beom-su, completed a 15-hour-and-40-minute questioning by the Financial Supervisory Service (FSS) on Tuesday for unfairly inflating share prices to win the bidding war against Hybe.

Following the extensive questioning, Kim expressed his intention to cooperate with the investigation, but refrained from providing specific responses regarding Kakao's stance on the recent stock price decline.

FSS is planning to summon other key executives such as Kakao CEO Hong Eun-taek and Kakao Entertainment CEO Kim Sung-su with the financial authorities set to take the case to the prosecution this week.

Three individuals, including Kakao's chief investment officer (CIO) Bae Jae-hyun, are facing allegations of violating capital market laws, while the CIO is already in custody.

The allegations are rooted in suspicions that these individuals may have interfered with an open market purchase of Hybe, the counterpart company involved in the acquisition of SM Entertainment. It is alleged that they injected some 240 billion won ($179 million) aimed to artificially inflate SM Entertainment's stock price above the open market purchase price of Hybe.

Authorities are looking into the connection between Kakao and the asset management company, Oneasia Partners, known for its special ties with Kakao. It has come to light that Oneasia Partners and its associated fund acquired shares worth 80 billion won, or 2.9 percent of the total, of SM Entertainment shares during Hybe's open market purchase period.

If the Supreme Court issues a final ruling on stock manipulation, it may affect Kakao's wider corporate governance structure — including its status of Kakao Bank as a major shareholder and could potentially lead to forced divestiture.

According to Korea's Internet-only Bank Act, shareholders with more than 10 percent ownership in an internet bank must not have a history of financial crimes in the past five years. If Kakao is found guilty, it would be required to reduce its stake in Kakao Bank from the current 27.17 percent to 10 percent or less. This could provide opportunities for other major shareholders, such as Korea Investment & Securities, to become the dominant stakeholders.

Governor of the FSS Lee Bok-hyun has indicated that they are "actively and comprehensively considering penalties for Kakao," and will "state their stance once the case is referred to the prosecution within the week" while speaking to the press Tuesday.

In addition to these legal matters, the previously postponed initial public offerings (IPOs) of Kakao Entertainment and Kakao Mobility now appear to face an indefinite delay.

Kakao has been encountering a series of record-low stock prices due to concerns about its financial performance coupled with the legal risks involving its management.

Kakao's stock price has been steadily declining since Oct. 13, hitting a 52-week low at 37,950 won on Monday. Similarly, the stock prices of Kakao Pay, Kakao Bank and other Kakao affiliates also experienced substantial declines. Kakao's stock rose by 4.35 percent Tuesday, closing at 39,600 won.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]