Two 'Kakao Cases' to be Investigated by Southern District Prosecutors...Focus on 'Kim Beom-su's Involvement'

Prosecutors Investigate 'SM Entertainment Stock Manipulation and Clay Coin' Case

The case of "Kakao's alleged market manipulation of SM Entertainment" that had been investigated by the Capital Market Special Judicial Police (Special Judicial Police) of the Financial Supervisory Service has been transferred to the Seoul Southern District Prosecutors' Office. The Seoul Southern District Prosecutors' Office will handle two cases related to Kim Beom-su, the founder of Kakao, including the ongoing investigation of the 'Klay' coin case.

Kim Beom-su, former chairman of Kakao, is appearing at the Financial Supervisory Service on the 23rd to be investigated regarding allegations of stock price manipulation related to the acquisition of SM Entertainment. Photo by Kang Jin-hyung aymsdream@

On the 26th, the Special Judicial Police of the Financial Supervisory Service transferred Bae Jae-hyun, Kakao's Chief Investment Officer, Kang Ho-jung, Head of Kakao's Investment Strategy Office, Lee Junho, Head of Kakao Entertainment's Investment Strategy Division, and the corporations Kakao and Kakao Entertainment to the Financial Investigation Division 2 (Chief Prosecutor Park Geon-young) of the Seoul Southern District Prosecutors' Office on charges of violating the Capital Markets Act.

They are accused of manipulating the stock price of SM Entertainment above the public tender price offered by HYBE, their competitor in the SM Entertainment management rights acquisition battle in February, by investing 240 billion KRW with the intent to obstruct HYBE. They used typical market manipulation methods such as placing high-priced buy orders above the market price and closing price intervention orders by placing high-priced orders during after-hours trading at the end of the market session. They are also accused of failing to report large stock holdings of SM Entertainment shares to the financial authorities. Under the Capital Markets Act, if the total shares held by oneself or special related parties reach 5% or more of the issued shares, a report must be submitted to the Financial Services Commission or the exchange within five days.

Meanwhile, the Seoul Southern District Prosecutors' Office's Joint Investigation Team on Virtual Asset Crimes (Head Lee Jeong-ryeol) is investigating the 'Klay' coin case, a blockchain platform coin developed by a Kakao affiliate. The complainant, the civic group Economic Democracy 21, claims that executives and employees involved in this business received Klay coins under various pretexts such as investment and service fees, thereby gaining unfair profits. They also raised suspicions about the opaque handling of funds raised by privately selling Klay coins to some investors before listing, which amounted to over 100 billion KRW.

The common point of the two cases is that Kim Beom-su, the founder and Future Initiative Center head of Kakao, has come under investigation. Although the Special Judicial Police excluded Kim from the current transfer, they believe he bears responsibility as he directly instructed or was briefed during the SM Entertainment M&A process, making it highly likely that Kim will soon be transferred to the prosecution. In August, the Special Judicial Police searched Kim's office to secure related materials and summoned him as a suspect on the 23rd for a 16-hour interrogation regarding his involvement in market manipulation. Having secured Kim's statements and materials, the Special Judicial Police are reportedly considering applying for an arrest warrant. The Special Judicial Police stated, "Among the 18 suspects, five have been transferred first," and added, "As evidence of conspiracy in market manipulation by the remaining suspects is confirmed, we will promptly investigate and transfer additional suspects."

The civic group that filed the complaint in the Klay case also named Kim as a suspect. Their basis is the Kakao group-level promotion of the Klay business conducted from late 2021 to early last year. They argue that since it was an important business with close aides deployed in the forefront and was reported as a core business for overseas expansion under the premise of 'conducting Kakao business,' it is unlikely that Kakao and Kim, who led the platform business insiders, were unaware of the coin distribution among insiders. Yae Ja-seon, a lawyer at Gwangya Law Firm and author of "How Kakao Sells Coins," said, "Kakao promoted to the media that the coin platform business reorganization and personnel transfers were conducted at the group level," adding, "It can be seen as a company-level decision rather than individual corruption." Since both cases are matters difficult to proceed without the approval of Kim, Kakao's largest shareholder and the same person as the corporate group, the prosecution is expected to investigate how far the reporting went and who authorized the decisions.

However, unlike the 'SM Entertainment market manipulation suspicion' case, where the Special Judicial Police have made progress by calling Kim a suspect, the investigation into the Klay case is slower. Currently, only the complainant's investigation has been conducted in the Klay case. A prosecution official said regarding the Klay case, "We are reviewing the presence or absence of charges based on the complaint."