The billionaire founder of South Korea’s Kakao Corp. has been found not guilty in a criminal trial involving Kakao’s bidding war against HYBE for K-pop agency SM Entertainment.
The Seoul Southern District Court on Tuesday (October 21) acquitted Kim Beom-su of charges of violating the Capital Markets Act, concluding prosecutors hadn’t proven their case that Kakao’s purchases of SM Entertainment stock amounted to stock price manipulation.
“Based on evidence from the prosecution, it is difficult to recognize that there were discussions to collude in stock manipulation,” the court said, as quoted by The Korea Herald.
“Kakao’s stock purchase orders differ significantly from those typically associated with price manipulation, considering the time intervals and methods of purchase. It is also difficult to see whether there was any intent to artificially fix prices at levels higher than normal market values.”
The court also handed down acquittals to Kakao itself and Kim’s co-defendants, which included former Kakao chief investment officer Bae Jae-hyun, Kim Sung-soo, CEO of subsidiary Kakao Entertainment, former Kakao CEO Hong Eun-taek, former Kakao investment strategy head Kang Ho-jung and One Asia Partners President Kim Tae-young.
One Asia Partners is a private equity fund management firm with links to Kakao that prosecutors alleged was involved in the scheme.
Prosecutors had sought a 15-year prison sentence for Kim, along with a fine of 500 million Korean won (USD $350,000). They alleged that Kim was the leader of a plot inside Kakao to drive up SM Entertainment’s stock price in February 2023, when entertainment giant HYBE was attempting to acquire SM Entertainment.
Prosecutors said the scheme involved funneling some KRW 240 billion ($172 million) across more than 300 individual transactions, causing SM Entertainment stock to rise dramatically.
Around that time, SM’s shares briefly spiked from around KRW 75,000 per share to more than KRW 147,000, before falling back down again. HYBE’s offer to buy SM, a rival K-pop company, fell through and Kakao Corp. tabled its own bid. Kakao eventually emerged as the winner in the bidding war, taking a 39.9% stake in SM Entertainment.
Then began a two-and-a-half-year-long legal ordeal for Kakao, which is one of South Korea’s most prominent tech and entertainment companies. It owns the popular messaging app KakaoTalk and music streaming service Melon.
“Based on evidence from the prosecution, it is difficult to recognize that there were discussions to collude in stock manipulation.”
Seoul Southern District Court
It’s also a major shareholder of KakaoBank, something that could have posed a major headache for Kakao if Kim had been convicted. Under South Korean law, an entity convicted of financial crimes can’t own more than 10% of a bank. Kakao, which owns around 27% of KakaoBank, would have been forced to divest its holdings, jeopardizing its control over the financial institution.
Kim was arrested in July 2024 and indicted the following month. He spent 100 days in custody before being released on bail with restrictions on his movements, according to Korea JoongAng Daily.
“For two years and eight months, Kakao group endured many difficulties due to the investigation and trial,” the company said in a statement quoted by The Herald.
“The difficulty in responding quickly to rapid market changes is particularly painful. We will strive to overcome this and fulfill our social responsibility.”
According to JoongAng Daily, the acquittals remove a major obstacle for Kakao, which had been falling behind in developing new products amid the investigation and trial.
The company is currently focused on integrating AI chatbots into its KakaoTalk app, and has been exploring the potential of creating a stablecoin linked to the value of the South Korean won.Music Business Worldwide
