Kakao raided over allegations of market manipulation in purchase of SM shares

The prosecution and financial authorities raided Kakao on Thursday over allegations that it was involved in market manipulation in its purchase of shares of SM Entertainment.

Kakao's office in Pangyo, Gyeonggi [YONHAP]

The prosecution and financial authorities raided Kakao on Thursday over allegations that it was involved in market manipulation in its purchase of shares of SM Entertainment.

Around 40 prosecutors and investigators from the Financial Supervisory Service (FSS) confiscated data related to the stock trading in February at Kakao’s office in Pangyo, Gyeonggi.

“The special judicial police at the FSS is presently in the process of investigating if the sale of SM shares is in violation of the Capital Markets Act under guidance from the prosecution,” said the FSS in a statement.

“The team is looking into whether there was artificial engagement to sway share prices in a certain direction,” the regulator said.

In February, Kakao was in a fierce battle with HYBE to acquire a bigger slice of shares in SM Entertainment.

HYBE accused Kakao of purposely buying a large amount of SM shares to artificially up the stock price of SM Entertainment with the intention of making HYBE's tender offer fail.

HYBE’s offering failed to attract sufficient shareholders since SM share prices hovered above its offering price of 120,000 won ($91) a piece.

Kakao bought 1.05 million shares, or a 4.43 percent stake, of SM Entertainment on February 28.

With HYBE pulling out from the battle last month, Kakao became the largest shareholder of SM Entertainment with a combined holding of 39.9 percent.

It is too early to tell whether the ongoing investigation will affect the acquisition, but the FSS takes a strict stance against manipulation activities.

When asked how the regulator will respond if illicit activity is found to have taken place in the Kakao-SM deal, the FSS chairman said with zero tolerance.

“If there was any illegal maneuver or method, it is never acceptable given the zero tolerance principle for any unfair trading, which has been pushed forward under the current administration,” Chairman Lee Bok-hyun said.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]