The billionaire founder of South Korean internet giant Kakao, Kim Beom-su, was arrested early Tuesday by a Seoul court.
He is accused of manipulating stock prices during the acquisition of SM Entertainment, a major player in the K-pop industry.
The Seoul Southern District Court issued an arrest warrant for the 58-year-old entrepreneur, citing “concerns of evidence destruction and flight.”
This decision, made after hours of deliberation, marks a significant development for Kakao, a conglomerate that swiftly rose to prominence in South Korea’s tech industry but has recently faced increasing government scrutiny.
Founded in 2010, Kakao has expanded into a vast empire, encompassing a major online bank, South Korea’s largest taxi-hailing app, and KakaoTalk, the country’s leading messaging app installed on 90 percent of phones.
The company also boasts a substantial entertainment portfolio, which it expanded in 2023 by acquiring a controlling 39.87 percent stake in SM Entertainment, making it the largest shareholder.
Prosecutors allege that Kakao bought 240 billion won, $173 million, worth of SM shares on 553 occasions in February 2023 at inflated prices.
This was allegedly a strategic move to prevent a takeover bid by HYBE, the agency behind K-pop superstars BTS.
HYBE had acquired a 14.8-percent stake from SM’s founder, Lee Soo-man, and proposed buying more shares at 120,000 won each but withdrew its bid after SM’s stock prices soared.
The court approved an arrest warrant for Kim, citing risks of flight and evidence destruction. Prosecutors have also questioned other Kakao executives regarding the case.
In an emergency meeting, Kim expressed regret over the situation and insisted the charges were false.
“I believe the facts will be revealed in the end as I have never ordered or tolerated any illegal activities,” he stated in a company press release on Tuesday.
Experts warn that Kim’s detention could pose significant challenges for Kakao. “Kakao’s AI-based innovation will likely meet difficulty due to the absence of the head of the company, and the group will have to focus its efforts on eliminating total risk and judicial risk,” said Choi Kyoung-jin, a law professor at Gachon University.
He added that the company’s governance would need reorganization in light of Kim’s absence.
South Korea has a history of convicting and imprisoning corporate leaders over corruption and other crimes.
Kim is the first of a new wave of tech entrepreneurs to face legal troubles. Celebrated for creating a platform linking various online services, Kim is now entangled in allegations of stock manipulation during Kakao’s high-profile takeover of SM Entertainment in 2023, which followed a fierce bidding war with HYBE.
