Kakao Shocked by Founder’s Arrest: "An Unbelievable Event Has Occurred"

Expectations for Rejection of Arrest Warrant Arise
Temporary Group Council Continues Internal Resolution Measures

Kakao founder and Management Innovation Committee Chairman Kim Beom-su, who is suspected of 'SM Entertainment price manipulation,' is attending the pre-arrest suspect interrogation (warrant review) held at the Seoul Southern District Court on the 22nd. Photo by Hyunmin Kim kimhyun81@

The unprecedented situation of Kim Beom-su, the founder of Kakao and chairman of the Management Innovation Committee, being detained by the prosecution has shocked the company internally. Although detention was not initially anticipated, the court siding with the prosecution has deepened concerns about managing the situation.

According to industry sources on the 23rd, the court issued an arrest warrant for Chairman Kim, who is accused of manipulating SM Entertainment's stock prices, citing concerns over evidence tampering and flight risk, leaving Kakao's internal atmosphere bewildered. Reactions such as "This is something we don't want to believe" and "We don't understand how concerns over evidence tampering and especially flight risk for a well-known company founder can be justified" have emerged. The Kakao branch of the National Chemical, Textile, and Food Industry Labor Union plans to hold a meeting to decide whether to issue a statement regarding this matter.

The prosecution believes that Kakao, together with the private equity firm One Asia Partners, mobilized approximately 240 billion KRW over four days?February 16-17 and 27-28 last year?to purchase SM shares 553 times at high prices. However, it is known that the arrest warrant for Chairman Kim only specifies the stock price manipulation charge for February 28.

Initially, there was hope within Kakao that an arrest warrant would not be issued for Chairman Kim. This expectation was strengthened by Kim's strong denial of the charges. On the 18th, at an emergency group meeting attended by CEOs of major affiliates belonging to the CA Council, Kim stated, "Since this is an ongoing matter, I cannot provide detailed explanations, but the charges currently being faced are not true," and added, "I have never ordered or condoned any illegal acts, so I believe the truth will eventually come to light."

Many in the industry expected a non-custodial investigation, considering the fairness of the private equity firm One Asia Partners' CEO, who was indicted for conspiring with Kakao to manipulate SM's stock prices, being released on bail the day before. Bae Jae-hyun, Kakao's Chief Investment Officer, who faced the same charges as Chairman Kim, was also indicted and detained in November last year but was released on bail in March and is currently on trial without detention.

However, the issuance of the arrest warrant indicates that the prosecution has sufficiently substantiated the criminal charges against Chairman Kim, and it is expected that after a maximum detention period of 20 days, including one extension, he will be indicted, suggesting that the turmoil will continue for some time.

Since Chairman Kim expressed his intention to donate more than half of his assets and established the foundation 'Brian Impact' in June 2021 to carry out social contribution activities, the sense of betrayal within the company appears to be even greater.

With Chairman Kim, suspected to be at the 'peak' of the stock price manipulation allegations arising during the SM acquisition process, ultimately being detained, Kakao is struggling to devise measures to alleviate internal shock. First, Kakao is expected to continue the internal recovery plan prepared at the previous emergency group meeting. A Kakao official stated, "The content announced at the emergency group meeting remains the final position."

At that time, Chairman Kim urged the continuation of business initiatives centered on management innovation and artificial intelligence (AI). CEOs also pledged to continue ongoing future growth strategies. CEO Jeong Shin-ah of Kakao said, "Under a serious recognition of the reality, we will boldly carry out the necessary tasks," and added, "I hope employees will remain steadfast and focus on their core duties."