South Korean billionaire and tech mogul Kim Beom-su, the founder of the internet giant Kakao, was arrested on Tuesday for allegedly manipulating the stock of SM Entertainment. Kakao acquired a controlling stake in this prominent K-pop company last year. This arrest represents a major development in a high-stakes corporate conflict involving key figures in the K-pop industry.
The founder of Kakao, a major South Korean internet company, was arrested this week on suspicion of stock manipulation. Kim Beom-su, a billionaire tech mogul, is accused of inflating the stock price of SM Entertainment, a K-pop agency that Kakao acquired a controlling stake in last year. This arrest marks a significant turn in a complex business battle involving powerful players in the Korean pop music industry.
Kim’s Denial of Wrongdoing
In response to the allegations, Kakao released a statement in which Kim asserted his innocence, claiming he had “never instructed or condoned any illegal acts.” This statement came after a meeting where Kim informed Kakao’s executives that the accusations were baseless. Despite these denials, the court proceeded with the arrest, reflecting the severity of the charges and the ongoing investigation.
Details of the Alleged Manipulation
The case centers on accusations that Kim and other Kakao executives artificially inflated SM Entertainment’s share price to obstruct Hybe’s attempt to acquire the company. Reports from Yonhap News Agency indicate that Kakao allegedly purchased approximately $173 million (KRW 240 billion) worth of SM’s shares at prices above $86.50 (KRW 120,000), the price at which Hybe was buying shares from SM’s investors. This maneuver purportedly aimed to derail Hybe’s takeover bid by driving up the stock price, making it less attractive for Hybe to continue its acquisition efforts.
Impact on Kakao’s Market Performance
Following the news of Kim’s arrest, Kakao’s shares experienced a significant drop, falling 5.12% to $28.11 (KRW 38,950) in late afternoon trading on Tuesday. This decline reflects investor concerns over the legal challenges facing the company and the potential repercussions of the allegations against its founder.
Ownership Stakes in SM Entertainment
Kakao and its subsidiary Kakao Entertainment collectively hold a 40.28% stake in SM Entertainment. Kakao is the largest shareholder with 20.97%, while Kakao Entertainment holds 19.31%. Despite these significant holdings, Hybe still maintains a 12.58% stake in SM Entertainment, underscoring the competitive and intertwined nature of these corporate interests.
According to Forbes, Kim Beom-su’s net worth is estimated at $3.3 billion, placing him just shy of the world’s 1,000 richest people. In April, Kim ranked sixth on Forbes’ list of the wealthiest Koreans, with a fortune of $4.5 billion at the time. Kim’s wealth and influence stem from his role as the founder of Kakao, a company that has grown from a messaging app into a comprehensive internet conglomerate, often referred to as a “super app.”
Kakao began as a messaging platform similar to China’s WeChat and has since evolved into a multifaceted service that allows users to send texts, join online groups, make payments, order groceries, and hail taxis. The company’s expansion into various sectors has solidified its presence as a dominant force in South Korea’s digital landscape. Kakao Entertainment, a subsidiary formed in 2021, operates several studios across TV, film, music, and webtoon comics, and also owns Melon, South Korea’s largest music streaming service.
The arrest of Kim Beom-su highlights the complex and often contentious nature of corporate dealings in the highly competitive K-pop industry. While the legal proceedings will determine the veracity of the allegations, the incident underscores the significant influence and reach of Kakao and its founder. As the investigation continues, the impact on Kakao’s market position and the broader entertainment industry remains to be seen. The outcome of this case will likely have far-reaching implications for corporate governance and market practices in South Korea.
