Home > National > Social Affairs

Kakao, its founder and other executives acquitted in SM takeover case

Published: 21 Oct. 2025, 18:01

Kim Beom-su, founder of Kakao and head of the Future Initiative Center, speaks to the press after his acquittal at the Seoul Southern District Court in Yangcheon District, western Seoul, on Oct. 21. [NEWS1]

After more than two and a half years under a legal cloud, Kakao received a full acquittal Tuesday in the first trial of an SM Entertainment stock manipulation case — with founder Kim Beom-su and all company executives found not guilty.

The ruling raises expectations that Kakao may regain momentum in pushing forward new businesses such as AI and stablecoin development.

The Seoul Southern District Court found that Kim, the head of Kakao’s Future Initiative Center, and co-defendants including Kakao as well as executives Bae Jae-hyun, Hong Eun-taek, Kim Sung-soo and Kang Ho-jung not guilty of violating the Capital Markets Act on Tuesday.

The defendants had been indicted for allegedly intervening in the acquisition of SM Entertainment in February 2023 by maintaining the stock price above the level of a tender offer made by rival HYBE, effectively disrupting the competitor’s takeover attempt.

Prosecutors had sought 15 years in prison and a 500 million won ($350,400) fine for Kim, along with a 500 million won fine for Kakao. As evidence, prosecutors cited transcripts of internal calls and claimed that Kim instructed staff to “peacefully take over” SM, which they interpreted as a directive to block HYBE’s offer.

But the court rejected that interpretation. “All participants testified that they did not understand his comments in that way,” the court said. “Even if the statement was made, it is more natural to understand it as a call to resolve the dispute peacefully, and there is insufficient evidence to conclude that Kakao acted with intent to manipulate the market.”

Kim Beom-su, head of Kakao’s Future Initiative Center, is released on bail from the Seoul Southern Detention Center in Guro District, western Seoul, on Oct. 31, 2024, after being detained over SM Entertainment stock manipulation allegations. [NEWS1]

This ruling removes a major legal obstacle that has burdened Kakao for over two years. The Financial Supervisory Service (FSS) launched an investigation in March 2023 — immediately after Kakao purchased SM shares — and transferred the case to prosecutors in October of that year.

The Kakao co-founder was summoned by the FSS in October 2023 and the prosecution in July 2024, eventually being indicted and detained in August 2024. He was released on bail after 100 days in custody and had since been under restrictions, including travel restrictions and a ban on contacting others involved in the case.

During this time, Kakao had been forced to focus internally on repairing its leadership structure, losing valuable time for innovation. Though the company appointed Chung Shin-a as CEO in December 2021 and created a corporate alignment council in January 2022, critics noted that Kim Beom-su's repeated withdrawal from the frontlines weakened the firm’s leadership.

While Kakao restructured its AI teams and released several products, none gained strong market traction. The company suffered a public setback in August when it failed to be selected for the government’s national AI foundation model initiative.

In a statement following the ruling, Kakao acknowledged that “the two years and eight months of investigation and trial created numerous difficulties for the group, including a diminished ability to respond quickly to rapid market changes.”

Kakao CEO Chung Shin-a delivers a keynote speech during the if(kakao) conference held at Kakao AI Campus in Yongin, Gyeonggi, on Sept. 23. [KAKAO]

AI and stablecoin ambitions

With the legal uncertainty lifted, the focus is now on whether Kakao can re-energize its strategic initiatives, including AI and digital finance.

At its if(kakao)2025 conference last month, the company showcased products such as ChatGPT loaded onto KakaoTalk — developed in partnership with OpenAI — and “Kanana in KakaoTalk,” an on-device AI assistant. Kakao also unveiled plans to build a Model Context Protocol ecosystem to unify AI service interactions through KakaoTalk.

Observers are closely watching whether Kim, now legally in the clear, will step in to boost Kakao’s AI ambitions.

Progress is also expected in the company’s stablecoin initiatives. Kakao formed a task force dedicated to stablecoin development in August. The move aligns with ongoing discussions at the Financial Services Commission to establish a legal framework for Korean won-based stablecoins.

If Kakao had been found guilty, its eligibility as a major shareholder in financial firms — such as KakaoBank — could have been jeopardized under the Act on Special Cases Concerning Establishment and Operation of Internet-Only Banks. With Tuesday’s acquittal, that risk has receded.

Left: Kakao CEO Chung Shin-a speaks at the company's developer conference in Yongin, Gyeonggi, on Sept. 23. Right: Naver CEO Choi Soo-yeon speaks at the company's networking event held in Silicon Valley on June 8. [NEWS1, NAVER]

Will Kim return to the helm?

“It is highly meaningful that the court has confirmed that Kakao is not a lawbreaking company,” CEO Chung said in an internal message following the ruling. “I believe that we can overcome the remaining challenges together.”

Speculation has grown over whether Kim will return to a frontline management role. “Naver saw a turnaround after founder Lee Hae-jin returned to oversee key decisions, such as the merger with Dunamu,” said one Kakao insider, speaking on condition of anonymity. “Kakao has been too cautious lately — delaying investment and making hesitant moves in new businesses. We need the founder to step in and steer us through this crisis.”

However, Kim is currently recovering from cancer surgery and is unlikely to return immediately. With the possibility of an appeals process ahead, his next steps remain uncertain. “He is focused on treatment and recovery at this time,” a Kakao spokesperson said.

Kakao shares rose 5.95 percent to close at 62,300 won on the Korea Exchange on Tuesday.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY JEONG YONG-HWAN, KIM MIN-JEONG [[email protected]]