Kakao founder Kim Beom-su to stand trial for SM Entertainment scandal

Kakao founder Kim Beom-su was indicted for stock manipulation in connection to SM Entertainment's acquisition. Prosecutors allege interference with stock market and failure to report stock purchases.

Kakao founder Kim Beom-su [NEWS1]

The Seoul Southern District Prosecutors’ Office indicted Kakao founder Kim Beom-su Thursday on allegations of stock manipulation tied to his company's acquisition of K-pop agency SM Entertainment.

Kim, who now faces a court trial, is accused of having violated the Capital Markets Act during the heated takeover of the entertainment giant, which represents artists aespa and NCT. Prosecutors allege that he and other Kakao executives artificially injected 240 billion won ($174.4 million) to inflate SM Entertainments’ stock prices between Feb. 16 and 17 and Feb. 27 and 28 in 2023, in collusion with private equity fund OneAsia Partners, in order to block BTS agency HYBE from purchasing them.

The executives are alleged to have interfered with the stock market on 553 occasions in a span of four days.

Kim also allegedly refrained from reporting stock purchases to financial regulators. A company is obligated to make such a regulatory report if it owns more than 5 percent of another firm. Kakao held an 8.16 percent stake in SM Entertainment during the period in question.

Kim was initially arrested on July 23. Former Kakao CEO Hong Eun-taek and former Kakao Entertainment CEO Kim Sung-soo were indicted without detention the same day.

Prosecutors had only tied Kim Beom-su to the manipulation alleged to have taken place on Feb. 28 when they initially filed for his arrest warrant last month. They now, after further investigation, believe that Kim was involved for the rest of the period.

At trial, prosecutors and Kim's defense are expected to enter a heated debate revolving around Clause 3, Article 176 of the Capital Markets Act.

“No one shall engage in making purchases or sales in connection with listed securities or exchange-traded derivatives or shall entrust or be entrusted with such act, with intent to fix or stabilize the market price of the listed securities or exchange-traded derivatives,” the clause states.

Prosecutors will need to prove that Kakao intentionally meddled with SM Entertainment’s shares with the purpose of obstructing HYBE’s acquisition attempt.

“We have secured sufficient material and testimonial evidence that Kim violated the relevant clause and plan to present them at the trial,” prosecutors told the JoongAng Ilbo.

Kakao’s attorney was unmoved, maintaining the stance that Kim did not instruct or condone to any illegalities involving the acquisition.

Kakao said in a short statement Thursday that it would “diligently vindicate the facts during court trial” and do its best to “minimize [Kim’s] management vacancy” with CEO Chung Shin-a serving as the head of Kakao’s Corporate Alignment (CA) Council, the company’s top decision-making body comprised of 13 main affiliates.

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