'High-Priced Acquisition of Production Company' Kakao Entertainment's Kim Seongsu and Lee Junho Head to Trial... Charges of Breach of Fiduciary Duty and Others

Former Kakao Entertainment CEO Kim Seong-su (62) and former Head of Investment Strategy Lee Junho (49), who are suspected of overpaying for a drama production company, have been jointly indicted.

On the 22nd, the Financial Investigation Division 1 of the Seoul Southern District Prosecutors' Office (Chief Prosecutor Kim Su-hong) announced that Kim and Lee were non-detained indicted on charges including violation of the Act on the Aggravated Punishment of Specific Economic Crimes (breach of trust), mediation and receipt of breach of trust, and violation of the Act on the Regulation of Concealment of Criminal Proceeds.

Kakao Pangyo Agit, Seongnam, Gyeonggi. Photo by Jinhyung Kang aymsdream@

According to the prosecution, the two injected 33.7 billion KRW of company funds into the drama production company 'Baram Pictures,' established in 2017, under the pretext of planning and development costs and loans starting around April 2019, despite the company having no sales, to facilitate its acquisition by Kakao Entertainment. Subsequently, from March to May 2020, Kakao Entertainment acquired Baram Pictures, which was financially distressed, for as much as 40 billion KRW.

The actual owner of Baram Pictures was none other than former Head Lee. Lee gained profits worth approximately 31.9 billion KRW from the acquisition by Kakao Entertainment. The prosecution believes that not only Lee but also former CEO Kim were aware of this fact but deliberately concealed it, thereby undermining Kakao Entertainment's internal control system. During the acquisition process, the high purchase price was arbitrarily decided without external accounting firm due diligence or valuation, and the two showed meticulousness by involving a third-party company to cover up the crime.

Furthermore, investigation results revealed that former CEO Kim received a total of 1.25646 billion KRW from former Head Lee as a reward for assisting the acquisition. To conceal the fact that he received money as a bribe, Kim used bank accounts and check cards under Lee's name and was also confirmed to have purchased luxury items such as expensive artworks and diamond necklaces.

Former Head Lee is also charged with embezzlement for arbitrarily using 1.05 billion KRW for personal purposes such as real estate purchases and loan repayments without going through a proper loan process while holding 6.05 billion KRW received by Baram Pictures in February 2017 from another content production company as drama planning and development funds.

A representative from the Seoul Southern District Prosecutors' Office stated, "This case involves executives of a large corporation affiliated with the entertainment industry, which holds enormous influence in drama and film production, abusing their positions within the company to obtain huge profits, leading a lavish lifestyle, and causing damage to the company. We will strictly respond to management corruption by corporate executives seeking illegal private gains and strive to establish fair corporate ethics."

Meanwhile, former CEO Kim was also non-detained indicted on the 8th for conspiring to manipulate the market price of SM Entertainment and is awaiting trial. Initially, former Head Lee was also investigated but reportedly received a non-prosecution disposition by applying for the leniency program for voluntary reporters (leniency).