FSS refers Kakao to prosecutors over alleged stock manipulation

The financial watchdog sent Kakao, its entertainment subsidiary and their three executives to prosecutors over alleged stock price manipulation linked to a takeover bid of an entertainment agency, it said on Thursday.

Kakao founder Kim Beom-su appears at the Financial Supervisory Service office in Yeouido, western Seoul, on Oct. 23 to attend questioning related to suspicions of stock manipulation concerning the acquisition of SM Entertainment shares. [NEWS1]

The financial watchdog sent Kakao, its entertainment subsidiary and their three executives to prosecutors over alleged stock price manipulation linked to a takeover bid of an entertainment agency, it said on Thursday.

The Financial Supervisory Service (FSS) made the announcement a week after it summoned Kakao founder Kim Beom-su to question Kakao’s suspected purchase of SM Entertainment shares to inflate its stock price to win the bidding war against HYBE over SM Entertainment, the agency behind aespa.

Kim was not included in the Thursday's list FSS sent to prosecutors.

Kakao and HYBE, which manages BTS, were involved in a bidding war to take over K-pop powerhouse SM Entertainment in March. The allegations are rooted in suspicions that executives at Kakao and Kakao Entertainment may have interfered with an open market purchase of HYBE.

It is alleged that they colluded with a private equity operator and injected some 240 billion won ($177 billion) to artificially inflate SM Entertainment’s stock price above the open market purchase price of HYBE, according to the FSS.

They manipulated the price of SM Entertainment and did not make regulatory reports for the mass holding of the stock, the FSS said.

“The crime took place in an unofficial decision-making procedure without being controlled internally or externally,” the regulatory watchdog said in a statement. They were consulted by law firms and financial experts on ways to conceal their crime, it added.

Such an act is a “serious crime” that caused damage to retail investors as it disrupted their investment decisions due to the volatility of the SM Entertainment stock price and harmed the foundation of the capital market.

The Seoul Central District Court issued an arrest warrant for Kakao Chief Investment Officer Bae Jae-hyun last week on suspicion of stock manipulation.

Kakao share closed down 3.34 percent on Thursday to 37,650 won.

BY JIN MIN-JI [jin.minji@joongang.co.kr]