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Kakao’s Kim Beom-su faces arrest warrant over alleged SM Entertainment stock manipulation

Published: 17 Jul. 2024, 11:54 Updated: 17 Jul. 2024, 16:54

LEE JAE-LIM
[email protected]

Kakao founder Kim Beom-su [NEWS1]

Prosecutors have filed for an arrest warrant for Kakao founder Kim Beom-su, alleging that he manipulated SM Entertainment’s stock last March when Kakao became the largest shareholder of the K-pop agency by acquiring a 39.87 percent stake.

The Seoul Southern District Prosecutor’s Office accuses Kim of violating the Financial Investment Services and Capital Markets Act and filed a request for the warrant on Wednesday.

Kim’s attorney, from Sejong Law Firm, responded by flatly denying the allegation, saying that the prosecutors' decision is "regrettable."

“Kim Beom-su, chairman of Kakao’s Corporate Alignment Council, did not instruct nor condone any illegal activities regarding the purchase of SM Entertainment shares last year,” the attorney said in a press statement. “The transaction was a legitimate market purchase aimed at securing shares for business collaboration purchases. Nevertheless, we regret that this matter has progressed to a stage where the prosecution has filed for an arrest warrant. We will diligently explain and clarify these points during the warrant review process.”

The move comes just eight days after the Kakao founder was summoned by prosecutors for further investigation into the allegations.

Kim endured more than 20 hours of intense interrogation from July 9 into the early morning of July 10, during which he reportedly denied most of the allegations.

Kim is suspected of involvement in the manipulation of SM Entertainment shares, colluding with the private equity fund management company OneAsia Partners during the bidding war that pit the messenger giant against another K-pop powerhouse, HYBE, for the acquisition.

The two parties are speculated to have artificially injected 240 billion won ($173.8 million) into the market to drive SM shares above 120,000 won between Feb. 16 and 17, and Feb. 27 and 28 in 2023, thereby obstructing HYBE’s attempt to acquire the stock.

Kakao ultimately came out as the winner in the takeover, allowing it and subsidiary Kakao Entertainment to jointly secure 39.87 percent stake in SM Entertainment.

The probe has been ongoing since February of last year, sparked by a report by HYBE requesting Korea’s financial regulator to investigate Kakao’s “abnormal” purchase of shares during the transaction. The prosecution and the Financial Supervisory Service raided Kim's office and Kakao’s Pangyo headquarters multiple times last year.

Kakao’s former chief investment officer, Bae Jae-hyun, and the CEO of OneAsia Partners, known by his surname Ji, are standing trial over the same allegations.

For Kim, prosecutors are probing whether he was also directly or indirectly involved, instructed, approved or turned a blind eye to the misconduct.

The warrant review is scheduled for 2 p.m. on Monday at the Seoul Southern District Court in western Seoul.

Update, July 17: Added statement by Kim's attorney, additional background on the allegations.

BY LEE JAE-LIM [[email protected]]