The founder of South Korean telecom giant Kakao Corp. has been indicted on charges of stock price manipulation linked to Kakao’s bidding war last year against K-pop giant HYBE over control of music agency SM Entertainment.
The Seoul Southern District Prosecutors’ Office indicted Kim Beom-su on Thursday (August 8) for violations of the Financial Investment Services and Capital Markets Act, according to local news reports. The indictments came some two weeks after Kim was arrested following a lengthy investigation.
Former Kakao CEO Hong Eun-taek and Kim Sung-soo, former CEO of subsidiary Kakao Entertainment, were indicted the same day as Kim Beom-su’s arrest, JoongAng Daily reported.
Prosecutors allege that Kim was involved in a campaign to inflate SM Entertainment’s stock price in order to push HYBE out of the bidding war. They say Kim and other executives pumped KRW 240 billion (USD $174 million) into SM Entertainment stock in 553 transactions that took place on February 16-17, and February 27-28, of 2023.
Prosecutors had initially tied Kim only to the second half of those transactions, in late February, which they alleged took place with the help of OneAsia Partners, an asset management firm with ties to Kakao.
However, further investigation resulted in the prosecution now alleging that Kim was involved in all incidents of alleged stock manipulation, the Korea Herald reported.
According to earlier news reports, the chief executive of OneAsia – identified in the press only by the surname Ji – is also standing trial over the alleged stock price manipulation.
Kakao’s Chief Investment Officer, Bae Jae-hyun, was arrested and indicted on violations of the Capital Markets Act last October.
Additionally, prosecutors say Kim and Kakao violated securities law by failing to disclose their acquisitions in SM Entertainment. South Korean law requires any entity with more than a 5% stake in a publicly traded company to disclose share purchases to regulators, and Kakao owned 8.16% of SM at the time the transactions were made.
In a statement issued Thursday, Kakao said it would “diligently vindicate the facts during court trial” and “minimize the management vacancy” created by Kim’s arrest, according to JoongAng Daily.
Prosecutors say the series of transactions in February 2023 inflated SM’s stock price above KRW 120,000 ($87) per share, the price at which HYBE had purchased a 14.8% stake in SM from its founder, Lee Soo-man, and the price at which HYBE was offering to buy out other SM shareholders.
HYBE eventually withdrew from the race for SM, and Kakao ended up effectively in control of SM with a 39.9% stake in the company.
But the story didn’t end there, as HYBE filed a legal complaint against Kakao, alleging stock price manipulation, which led to an investigation that included a series of raids on Kakao’s headquarters, as well as the offices of SM Entertainment.
Despite the accusations swirling around Kakao’s takeover of SM, Korean trade regulators approved the deal earlier this year, but with certain conditions designed to ensure that Kakao doesn’t abuse its strong position in the music market.
Kakao owns Melon, South Korea’s largest music streaming service. Under the conditional approval, Melon is required to distribute music from labels and distributors that compete with SM Entertainment.
Kakao also owns KakaoTalk, the dominant instant message service in South Korea. Amid the widening criminal investigation, the company has seen more than 40% of its stock value wiped out. The stock was trading at around KRW 38,450 on Thursday, down from around KRW 67,000 in February of last year, before the bidding war for SM Entertainment.Music Business Worldwide