Founder of South Korea's Kakao arrested for suspected stock manipulation

SEOUL — South Korean authorities arrested Kim Beom-su, the billionaire founder of tech giant Kakao Corp on Tuesday (July 23), on accusations of manipulating stocks during the acquisition of a K-Pop agency last year.

It is the latest legal twist for Kakao, which runs South Korea's largest chat app, after the company and another executive went on trial last year, accused of wrongdoing during the acquisition.

Founder Kim, also known as Brian Kim, is seen as a visionary in South Korea's digital industry for building from the ground up the Kakao group, worth 86 trillion won ($83.38 billion) by assets, since the chat app launched in 2010.

Any case against him could jeopardise Kakao's investments into artificial intelligence as well as its plans to expand overseas, industry experts said.

Prosecutors say Kim was involved in manipulating the stock price of SM Entertainment in February last year to hinder a competitor, Hybe, from acquiring it.

In a statement, Kakao Corp called the situation "unfortunate", adding that its chief executive, Shina Chung, would lead the effort to minimise any management vacuum.

Kim has denied the accusations, saying he never ordered or tolerated any illegal activity, the company said in a statement. He has not yet been formally charged.

The high-profile tech entrepreneur is the largest shareholder of Kakao Corp, with a 24 per cent stake that he and affiliated entities control.

Seoul Southern District Court approved the arrest warrant to prevent the potential destruction of evidence, and because Kim was a flight risk, a court official said on Tuesday.

Kim is being held at the Seoul Nambu Detention Centre, a prosecution spokesperson said.

His arrest will last for up to 20 days, during which prosecutors will investigate further before deciding whether to indict him, according to South Korean criminal procedure.

The outcome of any case against Kim could jeopardise Kakao group's control of online bank arm KakaoBank Corp since the country's financial rules restrict those convicted of financial crime from owning a more than a 10 per cent stake in a bank.

Kakao is also likely to face regulatory scrutiny, making it harder to make major decisions on investments in artificial intelligence (AI) and overseas business expansion, industry experts said.

The company plans to introduce new AI services this year.

Kakao Corp shares, which have lost 24 per cent this year, closed down 5.4 per cent in their biggest daily fall since Dec 15, 2022.

Affiliates Kakaopay and Kakao Games fell to record lows, down 7.8 per cent and 5.2 per cent, respectively. Kakaobank fell 3.8 per cent.

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