Kakao Founder Arrested In Alleged Stock Manipulation Case

Brian Kim, the billionaire founder of Kakao Corporation, South Korea’s leading internet company, has been arrested following accusations of stock manipulation related to last year’s high-stakes bidding war for K-pop agency SM Entertainment.

The arrest warrant issued by Seoul’s Southern District Court on Tuesday cited concerns over potential destruction of evidence and flight risk amidst the ongoing investigation. Kakao, known for its diverse portfolio including popular messaging apps and online services, had acquired SM Entertainment in a competitive bid against Hybe Corporation, the management agency of global sensation BTS.

Financial regulators allege that Kakao executives, including Chief Investment Officer Bae Jae-hyun, orchestrated the purchase of Won240 billion ($173 million) worth of SM shares to undermine Hybe’s tender offer. Both Kim and Bae have vehemently denied any involvement in illegal activities concerning the acquisition.

Kim, celebrated as one of South Korea’s most successful self-made entrepreneurs, catapulted Kakao to prominence with the launch of its messenger app in 2010. Under his leadership, Kakao expanded into various sectors such as social media, internet portals, online banking, shopping, and gaming, establishing itself as the country’s 15th largest conglomerate by assets, according to the Korea Fair Trade Commission.

The arrest of Kim marks a significant legal development in South Korea, reminiscent of the high-profile cases involving major corporate figures like Samsung Electronics’ Lee Jae-yong. While Lee was later pardoned after being arrested on corruption charges in 2017, Kim’s legal predicament underscores growing regulatory scrutiny over internet giants like Kakao, accused of adversely impacting local businesses.

Amidst Kim’s legal challenges, Kakao faces potential disruptions to its business strategies, particularly as it ramps up investments in artificial intelligence and expands its global footprint with digital comics known as webtoons. The company, which expressed regret over Kim’s arrest, emphasized its commitment to mitigating any operational disruptions during this period.

Kim, who retains a significant 24 percent stake in Kakao, could face severe consequences under South Korean law if found guilty, potentially losing control over KakaoBank due to restrictions on ownership for those convicted of financial crimes. Kakao’s stock has plummeted by 77 percent since its peak in 2021, reflecting investor concerns amidst the ongoing legal turmoil.

On Tuesday, Kakao’s shares dropped by 4.6 percent while the benchmark Kospi index rose by 0.4 percent, underscoring the impact of Kim’s arrest on the company’s market valuation, currently estimated at Won17.4 trillion.

As South Korean authorities intensify efforts to regulate internet conglomerates, Kakao finds itself at the forefront of scrutiny, navigating legal challenges that could reshape its future trajectory in the global tech landscape.