Founder of South Korean cocoa company arrested for alleged stock manipulation

By Joyce Lee

SEOUL (Reuters) – The billionaire founder of South Korean technology giant Kakao Corp, Kim Beom-su, was arrested on Tuesday on charges of stock manipulation in his takeover of a K-pop agency last year.

The case is the latest legal twist for Kakao, the operator of South Korea’s largest chat app, after the company and another executive went on trial last year for alleged misconduct related to the same acquisition.

Kim, also known as Brian Kim, is considered a visionary in South Korea’s digital industry, having built the Kakao subsidiary – which has assets of 86 trillion won ($62 billion) – from the ground up since the chat app’s launch in 2010.

Industry experts say any proceedings against him could jeopardize Kakao’s investments in artificial intelligence as well as its overseas expansion plans.

Prosecutors accuse Kim of being involved in manipulating SM Entertainment’s share price in February last year to prevent competitor Hybe from taking over the company.

Kim has denied the allegations and said he never ordered or condoned illegal activities, the company said in a statement. No official charges have been brought against him so far. Kakao and Kim’s lawyer did not initially comment further on Tuesday.

The well-known technology entrepreneur is the largest shareholder in Kakao Corp.; he and affiliated companies control a 24% stake.

The Seoul Southern District Court issued the arrest warrant to prevent the possible destruction of evidence and because Kim posed a risk of flight, a court official said on Tuesday.

Kim is being held at the Seoul Nambu Detention Center, a prosecutor’s office spokesman said. His detention will last up to 20 days, during which time prosecutors will conduct further investigations before deciding whether to press charges against him, according to South Korea’s criminal prosecution system.

The outcome of a case against Kim could jeopardize the Kakao Group’s control over the online bank KakaoBank Corp, as the country’s financial laws prohibit people convicted of financial crimes from owning more than 10 percent of shares in a bank.

In addition, Kakao is likely to face regulatory scrutiny, making it more difficult for the company to make key decisions about investing in artificial intelligence (AI) and expanding overseas, industry experts said.

The company plans to launch new AI services this year. Kakao Corp shares fell 3.4 percent in morning trading to their lowest since November, after already falling 24 percent since the start of the year.

(1 USD = 1,389.2700 won)

(Reporting by Joyce Lee in Seoul; additional reporting by Jihoon Lee; editing by Ed Davies, Clarence Fernandez, Matthew Lewis and Miral Fahmy)