Dispute Over Kim Beom-su's Decision-Making Status
Kim Beom-su, Chairman of Kakao's Management Innovation Committee, who is accused of manipulating stock prices during the acquisition process of SM Entertainment (SM), denied all charges at his first trial.
Kakao founder and Management Innovation Committee Chairman Beom-su Kim, considered the pinnacle of the 'SM market manipulation' suspicion, is attending the pre-arrest detention hearing at the Southern District Court in Yangcheon-gu, Seoul on the 22nd. Photo by Hyun-min Kim kimhyun81@
At the trial held on the afternoon of the 11th at the Seoul Southern District Court Criminal Division 15 (Presiding Judge Yang Hwan-seung), Kim's defense argued, “Chairman Kim had no intention or purpose of market manipulation or stabilization,” and stated, "The prosecution forcibly detained him on charges of market manipulation under the Capital Markets Act for purchasing shares as a normal business necessity amid a shareholding competition."
The main issue in this trial is whether the SM stock price was artificially inflated to obstruct HYBE during the acquisition process and whether Chairman Kim was involved in the decision-making. The prosecution stated, “Chairman Kim has led key personnel and investment decisions of Kakao affiliates, effectively exercising influence as the final decision-maker of the Kakao Group. During the group's investment expansion, debt surged from approximately 154.5 billion KRW to about 1.5517 trillion KRW in 2022, and the net loss for the period turned to approximately 438 billion KRW, causing rapid deterioration in management. Consequently, Kakao Entertainment planned and decided to acquire SM around 2021 to overcome the crisis and achieve management goals such as conducting an IPO.”
The prosecution said, “At the Investment Deliberation Committee meeting on January 30 last year, defendant Hong Eun-taek, former CEO of Kakao, and Kim Seong-su, former CEO of Kakao Entertainment, supported the SM acquisition plan, but Kim Ki-yong, CFO of Kakao Group, opposed it. However, Chairman Kim approved the SM management acquisition plan despite the opposition and instructed the attendees of the Investment Deliberation Committee, ‘From Kakao Entertainment’s perspective, acquiring SM’s convertible bonds is a good opportunity. Maintain confidentiality and be careful not to let the stock price rise,’” the prosecution said.
The prosecution claimed, “When HYBE announced on February 24 that it would take legal action regarding Kakao and SM’s business changes and new convertible bond acquisition contracts, Chairman Kim and former CEO Kim issued a statement on February 27 suggesting that Kakao might enter the competition for SM’s management rights, attempting to boost the stock price. The next day, they held another Investment Deliberation Committee meeting to monitor stock price fluctuations and decided to proceed with on-market purchases to block HYBE’s public tender offer.”
The prosecution stated, “Chairman Kim conspired with Bae Jae-hyun, Kakao’s Chief Investment Officer, and from March 16 to 28, 2023, Kakao, Kakao Entertainment, One Asia, Helios, and Greigo collectively held 1,942,784 shares, equivalent to 8.16% of SM’s total shares. Additionally, Kakao purchased 110,039 shares, equivalent to 0.47% of total shares, on March 2-3 but failed to report this to the Financial Services Commission and the stock exchange by March 8 of the same year.”
Kim’s defense argued, “In the situation where HYBE issued a hostile statement, Chairman Kim did not oppose securing shares as he judged the proposal by Chief Investment Officer Bae Jae-hyun to be reasonable and necessary for management,” and added, “Even after HYBE’s public tender offer, SM’s stock price consistently remained above 120,000 KRW. The demand for SM shares was due to the shareholding competition between Kakao and HYBE, not HYBE’s public tender offer.”
Kim’s defense also stated, “Above all, Chairman Kim had no intention to artificially manipulate or fix the market price. He consistently maintained the opinion to resolve the issue through negotiation rather than fighting HYBE,” and “Chairman Kim had no involvement in the purchase of SM shares by One Asia and others and was unaware of the purchases themselves. Therefore, he had no awareness that Kakao, Kakao Entertainment, and One Asia jointly held SM shares.”
Earlier, Chairman Kim was accused of conspiring with One Asia Partners and others to manipulate SM Entertainment’s stock price by fixing it above the public tender offer price of 120,000 KRW to obstruct the rival company HYBE’s public tender offer during the acquisition process on February 16-17 and 27-28 last year. The prosecution believes that as the group’s top decision-maker, Chairman Kim was informed of and approved the market manipulation plan in advance, and executives systematically mobilized funds to execute on-market accumulation for price manipulation. The court plans to receive opinions on the evidence from the defense by the end of this month and hold a pretrial conference on the 8th of next month.
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