Kim Beom-su, First Prosecutor Summons... Tension Over Kakao's Legal Risks

Kakao's Kim Beom-su First Prosecutor Summons
SM Entertainment Suspected of Market Manipulation

Kim Beom-su, the founder of Kakao and chairman of the management innovation committee, is being summoned for investigation by the prosecution over allegations of stock price manipulation involving SM Entertainment (SM). This is the first time Kim is facing a direct investigation by the prosecution since the Financial Supervisory Service (FSS) referred him and others to the prosecution last November. As the prosecution’s scrutiny shifts from key executives to Chairman Kim, Kakao is reportedly on edge.

On the 9th, the Financial Investigation Division 2 of the Seoul Southern District Prosecutors’ Office (Chief Prosecutor Jang Dae-gyu) announced that they have summoned Chairman Kim since the morning for investigation on charges of violating the Capital Markets Act related to the SM stock price manipulation case.

Last February, during the competition with HYBE over the acquisition of SM, allegations surfaced that Kakao conspired with private equity fund operator One Asia Partners and others. It is alleged that they attempted to raise and fix SM’s stock price above the public tender offer price of 120,000 KRW. The prosecution is focusing on whether Chairman Kim gave instructions or approval during this process.

Kakao Group’s management is under comprehensive investigation by the prosecution. The FSS’s Capital Markets Special Judicial Police (Special Judicial Police) referred Chairman Kim and others to the Southern District Prosecutors’ Office last November on charges of violating the Capital Markets Act. Subsequently, the prosecution conducted a search and seizure at Kakao based on investigation materials. They also indicted former Kakao Chief Investment Officer Bae Jae-hyun and Ji Mo, CEO of private equity fund operator One Asia Partners. Former Kakao Entertainment CEO Kim Sung-soo and Lee Junho, head of Kakao Entertainment’s investment strategy division, were summoned for investigation over allegations of overpriced acquisition of a drama production company. Recently, it was reported that Hwang Tae-seon, head of Kakao CA Council, was also called in for questioning.

With Chairman Kim exposed to legal risks, Kakao is in a tense atmosphere. Since the end of last year, Kim has stepped out from being a “reclusive executive” to take direct charge of crisis management. He reorganized the group’s control tower around the CA Council and serves as co-chairman alongside CEO Jeong Shin-ah. As the main figure of reform becomes the subject of investigation, a sense of confusion is felt both inside and outside the company. There are concerns that if the legal risks extend to Chairman Kim, the community’s central pillar could be lost.

Kakao’s plans to target SM and the global market are inevitably facing setbacks. The entertainment business, along with webtoons and web novels, has been a key pillar in Kakao’s strategy to increase overseas sales, countering criticism of being a “domestic-oriented company.”

Kakao Corporation itself is also indicted. If Kakao Corporation is convicted and sentenced to a fine or higher by the court, it will be required by law to sell all but 10% of its 27.17% stake in KakaoBank, resulting in the loss of its status as a major shareholder.

Meanwhile, a Kakao representative stated that they have "no separate position" regarding this summons investigation.