Kim Seong-su, former CEO of Kakao Entertainment, who was prosecuted on charges of breach of trust for acquiring a drama production company with no sales for three years after its establishment at a high price of 40 billion KRW, has completely denied the charges, claiming that he "bought it cheaply." However, he failed to provide a clear explanation regarding allegations that he used about 1.3 billion KRW with a borrowed-name check card as acquisition payment.
According to the legal community on the 13th, the 15th Criminal Division of the Seoul Southern District Court (Presiding Judge Yang Hwan-seung) held the second trial session yesterday for former CEO Kim and former Head of Kakao Entertainment’s Investment Strategy Division Lee Junho, who were prosecuted on charges including violation of the Act on the Aggravated Punishment of Specific Economic Crimes (breach of trust), breach of trust mediation and acceptance, and violation of the Act on Reporting and Using Specified Financial Transaction Information. The core of the charges is that Lee Junho, who established the production company 'Baram Pictures' in February 2017 with a capital of 100 million KRW, caused financial damage to the company by not only using Kakao Entertainment’s funds to recruit famous writers and PDs but also acquiring the company for 40 billion KRW. Baram Pictures had no drama production activities since its establishment, and its sales were zero between 2018 and 2020. At the time of acquisition in 2020, the company was in a state of complete capital erosion, with liabilities exceeding assets.
Former CEO Kim took the floor and said, "Writer Kim Eun-hee and PD Park Ho-sik of Baram Pictures were the best writers and directors, like the 'Avengers'." He added, "It was fortunate that Lee Junho owned that company, so we didn’t have to compete with other companies for the acquisition." He further stated, "After reviewing several references, I thought the purchase price should be at least 50 to 60 billion KRW, but since I had a relationship with Lee Junho, I thought I bought it cheaply at 40 billion KRW." He implied that in the entertainment industry, the value of a production company should not be judged solely on financials but also on intangible assets such as affiliated directors and writers. Writer Kim, known as the wife of director Jang Hang-jun and a 'star writer,' participated in the establishment of Baram Pictures and held a 20% stake. According to the prosecution, after the acquisition by Kakao Entertainment, she received 8 billion KRW, which is 20% of the acquisition price (40 billion KRW).
The prosecution immediately rebutted. They claimed that a total of 33.7 billion KRW of Kakao Entertainment’s funds were invested in recruiting famous writers and directors for Baram Pictures, which had no production activities initially, thereby inflating its value to 40 billion KRW. Of the 40 billion KRW acquisition funds, 80%, or 32 billion KRW, was pocketed by former Head Lee. In particular, the prosecution views the provision of a check card under Lee’s name to former CEO Kim as a quid pro quo for the high-priced acquisition. Lee handed over a bankbook and check card with 1.8 billion KRW deposited to Kim, who is believed to have spent 1.25646 billion KRW from it. The prosecution emphasized, "The very fact that a borrowed-name card was used indicates clear recognition of the illegality of the transaction," and "The need to conduct the transaction secretly is practically an admission." They added, "While it is known that Kakao Entertainment was conducting aggressive mergers and acquisitions (M&A) at the time, only Baram Pictures received exceptional favors and support during the acquisition of multiple companies," and "We will explain this through future evidence investigations."
The presiding court also pointed out, "If it were a company operated by a third party, it might be understandable to support it with company funds upon acquisition, but it is questionable whether Lee Junho, the actual owner of Baram Pictures, needed to play such a role within the victim company (Kakao Entertainment)." The court explained that if Kakao Entertainment intended to acquire Baram Pictures based on normal business judgment, it would be unnatural to inflate the value of the target company by injecting funds before acquisition. Regarding the use of the borrowed-name card, the court noted, "It is a very unusual case, and it seems the defendant side has not sufficiently explained it."
Meanwhile, the simultaneous establishment of breach of trust and acceptance of breach of trust charges against former Head Lee, who is a Kakao Entertainment executive and the actual owner of the acquired Baram Pictures, remains a contentious issue. The defense argued that being an accomplice to breach of trust while simultaneously being charged with acceptance of breach of trust is legally contradictory. On the other hand, the prosecution explained that considering Lee’s dual status, the two charges can be established separately.
The next trial session is scheduled for January 21 of next year.
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