(Bloomberg) — South Korean prosecutors have charged Kakao Corp. founder Brian Kim with stock manipulation, setting off a landmark case that has South Korea’s fledgling internet industry on tenterhooks.
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Prosecutors have formally charged the entrepreneur with market violations during his company’s takeover battle for SM Entertainment Co., Yonhap News reported on Thursday. Kim was allegedly involved in an attempt to buy SM shares and push them over a competing offer of 120,000 won ($87) from BTS’s agency Hybe Co. Executives carried out this alleged maneuver on a total of four days, in mid-February 2023 and later that month, Yonhap said, citing prosecutors.
The billionaire who created Korea’s leading social media platform is at the center of one of the country’s most high-profile corporate cases in years. Kim was arrested in July for his alleged involvement in the alleged plot – making him the highest-profile tech executive behind bars since prosecutors pursued Samsung Electronics Co.’s Jay Y. Lee. Thursday’s indictment paves the way for a subsequent trial, the date of which will be set later. Kim will remain in custody until then.
Kakao’s shares rose as much as 2.1 percent after the company reported an 81 percent rise in third-quarter net profit. But in the long term, the outcome of the case could have serious consequences for a $25 billion business empire that includes several publicly traded companies and a variety of internet businesses.
Kakao’s plan to make the deal secure the content it needs to expand its dominance in markets ranging from music and shopping to ride-hailing has instead sparked legal furore and raised questions about the future of emerging innovators taking on the country’s conglomerates.
A prosecutor’s office official confirmed in a statement that Yonhap’s report was true. Spokesmen for Kim and Kakao have repeatedly denied the allegations and said no illegal activities occurred in the SM takeover.
A company spokesman said on Thursday that the upcoming trial would clarify the truth about what happened and that efforts would be made to minimize any disruption to management under the leadership of CEO Chung Shina.
It’s a stunning turnaround for Kim, 58, who at his peak amassed a fortune of $14.4 billion, making him Korea’s richest man. This week, his wealth has fallen to about $3.4 billion, according to the Bloomberg Billionaires Index.
His arrest also reflects a change of heart in South Korea.
Kim and other entrepreneurs like Bom Kim of Coupang Inc. were once celebrated as pioneers who stood up to the titans of Silicon Valley and created a Korea-centric internet – a high-growth, flashier alternative to the steel companies, chipmakers and shipbuilders that are the driving force behind Korea’s economy.
But as internet services grew in influence, government officials became concerned that they were crowding out smaller merchants and established companies in banking, retail and entertainment. In 2022, a widespread outage following a fire at a data center highlighted how much a large portion of the population relied on Kakao for basic needs like news and commerce.
Kim has been battling a series of investigations since 2021 on everything from whether he paid his taxes to alleged monopoly behavior, and then a bidding war against Hybe, the agency that represents the successful boy band BTS.
Financial regulators have accused executives at Kakao and its subsidiary Kakao Entertainment Corp. of buying 240 billion won ($173 million) worth of SM shares at the time to thwart Hybe’s bid. The courts decided to detain Kim while investigators worked out the details.
Meanwhile, critics pointed to the extraordinary number of cocoa subsidiaries with mutual shareholdings – according to official figures, there are more than 120.
This was reminiscent of the way in which the country’s largest conglomerates, the so-called chaebols, have expanded their dominance in recent decades – a practice that led to rigorous government action due to its potential for abuse.
– With support from Seyoon Kim.
(Updated with release action and context from fourth paragraph)
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