South Korean prosecutors have issued an arrest warrant for Brian Kim, the founder of Korean internet giant Naver, amid an ongoing investigation into allegations of stock market manipulation linked to a high-stakes bidding war for SM Entertainment, one of South Korea’s largest music labels, in 2023?
A warrant is issued weekly by Seoul-based prosecutors as part of an investigation into allegations that Kim was involved in manipulating the stock price of SM Entertainment, a major Korean entertainment company.
As Kako did not provide a comment prior to publication, we were unable to obtain a statement.
In March 2023, Kakao and its subsidiary, Kakao Leisure, emerged victorious from a bidding battle to acquire a 39.9% stake in the prominent K-pop record label. Kakao was engaged in a competitive struggle with Hybe, the parent company of South Korea’s renowned music label, Big Hit, which has gained widespread acclaim for its flagship K-pop group, BTS. Kakao launched a bid to acquire SM Entertainment’s shares at 150,000 Korean won ($115) apiece, outbidding Hybe’s earlier offer of 120,000 KRW (~$87) per share.
When an organization makes the decision to go public, it issues a prospectus and seeks to raise capital by selling its shares to institutional investors or individual investors through a stock exchange. The primary objective of a young provider is usually to acquire control of the goal firm, with the success of this endeavor heavily reliant on the client securing a significant equity stake.
Korean prosecutors are investigating allegations that SM Entertainment’s share value was artificially inflated before a deal was finalised. Kakao has been accused of acquiring KRW 240 billion (approximately $174 million) worth of shares from SM Leisure through 553 transactions in February 2023. The surge in stock value allegedly pushed the corporation’s share price above Hybe’s tender offer value of 120,000 Korean won per share, prompting Hybe to withdraw its offer.
Can Kakao be accused of concealing large-scale inventory acquisitions from financial regulators?
Following a probe into alleged inventory value manipulation, Kakao’s chief financial officer, Jae-Hyun Bae, departed in late October. He’s at present on trial.
Following Kakao’s acquisition of SM Leisure in March, Hybe subsequently divested a part of its stake in the company to Kakao, thus reducing its ownership to 8.8% from an earlier percentage.
Founded in 2006, Kakao emerged as one of South Korea’s leading internet companies. The company operates a suite of services including the popular messaging app Kakao Speak, the on-demand taxi service Kakao Mobility, online banking platform Kakao Financial, music streaming service Melon, and digital comic host Kakao Webtoon.
If Kakao’s chief information officer and other executives at Kakao Leisure are found to be in violation, Korea’s financial regulator may force Kakao to dispose of at least 10% of its stake in its online banking affiliate, Kakao Bank.
In response to South Korea’s online banking regulations, non-financial corporations seeking more than 10% of voting rights in mobile-only banks must not have violated financial laws, including the Capital Markets Act, or engaged in unfair trade practices over the past five years.
