Kakao founder arrested for alleged market manipulation

Brian Kim, the founder of South Korean internet giant Kakao, was arrested on Tuesday on charges of stock price manipulation in connection with the company’s acquisition of K-pop agency SM Entertainment in 2023.

The Seoul Southern District Court said on Tuesday that it had issued an arrest warrant for Kim following a hearing on Monday due to “concerns about destruction of evidence and escape.”

He could be jailed for up to 20 days as prosecutors conduct further investigations before filing charges. This could potentially affect Kakao’s operations and plans in AI, as the founder was a key figure in the company’s strategic decisions.

A Kakao spokesperson told TechCrunch that the company will do everything in its power to minimize the rift between the co-chairs and the company’s council.

Kim is accused of being involved in manipulating SM Entertainment’s share price during a bidding war for the company in 2023. Kakao was competing with Hybe, the owner of South Korean music agency BigHit, which is behind K-pop boy band BTS.

Kakao is allegedly accused of purchasing SM Entertainment shares worth 240 billion KRW (~$174 million) in 553 transactions in February 2023. This allegedly pushed the company’s share price above Hybe’s takeover offer price of 120,000 KRW per share, prompting Hybe to withdraw its offer.

Kakao said in a statement last week that the allegations were untrue because Kim never ordered or tolerated illegal activities.

Kakao’s chief investor, Jae-Hyun Bae, was arrested last October after being accused of manipulating the stock price after the takeover and is currently on trial.

Founded in 2006, Kakao launched South Korea’s most popular messaging app, KakaoTalk, in 2010. It grew to become the country’s super app and now offers a range of services, including on-demand taxi service Kakao Mobility, online banking platform Kakao Bank and music streaming service Melon. According to Tracxn, Kakao completed 13 acquisitions between 2011 and 2022 with an average acquisition value of $546 million.