Weighing Arrest Warrant for Kim Beom-soo
The Financial Supervisory Service (FSS) has forwarded its indictment recommendation to the prosecution, targeting Kakao and Kakao Entertainment Corporation in connection with their alleged involvement in the stock manipulation case of SM Entertainment.
Following his summons for questioning, Kim Beom-soo, the founder of Kakao, has been excluded from the list of those sent to the prosecution, raising interest in the direction of the handling of new developments in the case.
The FSS’ Capital Market Special Judicial Police announced on Oct. 26 that it has sent Kakao’s Chief Investment Officer Bae Jae-hyun, along with Mr. A, head of the investment strategy division, and Mr. B, head of the strategic investment division of Kakao Entertainment, as well as Kakao and Kakao Entertainment, to the prosecution on charges of violating the Capital Markets Act.
According to the Special Judicial Police, CIO Bae and others are under suspicion of conspiring with private equity fund management company One Asia Investment Partners in February to invest over 240 billion won (US$176.67 million) in order to interfere with HYBE’s public takeover attempt, a competing bidder for SM Entertainment’s management rights. They are accused of artificially inflating SM Entertainment’s stock price above HYBE’s public takeover price. Their actions involved typical market manipulation techniques, such as high-priced buy orders and end-of-day transactions.
During this process, they are also suspected of not reporting their substantial stock holdings to financial authorities.
The Special Judicial Police stated, “Their wrongdoing proceeded through an unofficial decision-making process not subject to internal or external controls,” and further noted, “It has been confirmed that there was no internal control in place to prevent the violations by Kakao and Kakao Entertainment as they sought advice on methods and concealment through a law firm, among other things.”
The Special Judicial Police highlighted that their actions constitute a breach of essential provisions of the Capital Markets Act, which are crucial for fair securities trading and corporate governance competition, such as regulations against unfair trading, public offering regulations, and reporting requirements for substantial shareholdings, also known as the “5 percent rule.”
If Kakao Corporation is found guilty in court in the future, it could raise questions about its eligibility as a major shareholder in Kakao Bank. In such a scenario, Kakao would be required to divest all of its holdings in Kakao Bank, leaving only 10 percent of its stake out of the total 27.17 percent.
The Special Judicial Police has termed the submission of these five individuals as “preliminary referrals” and has indicated the possibility of further referrals for the remaining suspects. As a result, there is heightened interest in the subsequent legal actions, including whether an arrest warrant will be sought for Kim Beom-soo, the founder who was questioned on Oct. 24.
The FSS initiated investigations and inquiries after receiving a request for investigation from HYBE, which had been in competition with Kakao regarding the takeover of SM Entertainment, stating that “abnormal purchasing behavior occurred during the public takeover offer.”