Kakao CIO arrested for alleged stock manipulation

The chief investment officer of Kakao, Bae Jae-hyun, has been arrested for allegedly inflating SM Entertainment's stock prices in an attempt to thwart HYBE's acquisition. Kakao's stock hit record lows as a result.

Kakao's office building in Pangyo, Gyeonggi, on Aug. 10. [NEWS1]

A chief investment officer of Kakao was arrested Thursday for unfairly inflating the stock prices of SM Entertainment in an alleged scam to crowd out HYBE for the acquisition of SM.

The news pushed down the stock of Kakao, hitting record low prices on Thursday. It dealt a heavy blow to the company already reeling from being a target of massive short-sellings by foreign investment banks and a slump in profits.

Kakao shares dipped 3.11 percent to close at 40,500 won ($29.84) on Thursday, the lowest since June 23, 2021 when its shares peaked to 169,500 won.

The Seoul Southern District Court issued an arrest warrant for Bae Jae-hyun after he was questioned on Wednesday afternoon under allegations of violating the Capital Markets Act. Other Kakao executives under investigation were not granted the arrest warrant.

Kakao was locked in an intense battle against another K-pop agency HYBE, that houses popular boy band BTS, to take over SM Entertainment earlier this year.

Kakao came out as the winner, becoming the largest shareholder of SM Entertainment with a combined holding of 39.87 percent.

During the process, however, the financial regulator accused Bae and two other people at Kakao and Kakao Entertainment of injecting 240 billion won to purchase SM Entertainment shares to pump up the price and hamper with HYBE’s attempt at its tender offer.

The Financial Supervisory Service (FSS) raided the offices of Kakao founder Kim Beom-su, Kakao, and SM Entertainment under the allegation since February.

The trio also face allegations that they did not report the purchase to the FSS.

According to Capital Markets Act, when a person acquires more than 5 percent of the total number of listed stocks, they need to report the purchase to the financial regulator within five working days.

The court did not issue an arrest warrant for the two other people, commenting “it is hard to determine that [the people] are subject to an arrest warrant.”

The attorney representing Bae released a press statement on Oct. 13 denying the allegations, claiming that “all the related stock purchases were conducted legally.”

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]