Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Kakao faces biggest crisis since its foundation
Kakao founder Kim Beom-su leaves the Financial Supervisory Service building in Seoul, Tuesday, after 16 hours of questioning by the special judicial police. Yonhap
By Park Jae-hyuk
Founder faces legal challenges for alleged SM stock price manipulation
Kakao’s acquisition of SM Entertainment earlier this year ended up causing the biggest crisis for the company since its foundation in 2006, exposing the founder and top executives to possible prison time on stock price manipulation charges, according to industry officials, Wednesday.
The IT firm, which has grown over the past decade thanks to the popularity of KakaoTalk, an instant messenger app, has been investigated since April by the special judicial police that is comprised of financial regulators and prosecutors.
The investigators suspect that Kakao intentionally inflated SM Entertainment’s stock price before the acquisition in February, to prevent the top-tier K-pop agency from being sold to another bidder, HYBE, which is better known as the agency of BTS.
Following months of investigations, the judicial police arrested Kakao Chief Investment Officer (CIO) Bae Jae-hyun, Oct. 19, putting the brakes on the company’s planned investments in new business sectors, including artificial intelligence (AI) and health care.
After arresting the CIO, the Financial Supervisory Service (FSS) summoned Kakao founder Kim Beom-su, Monday, and Kakao CEO Hong Eun-taek and Kakao Entertainment CEO Kim Sung-su, Tuesday, for questioning on whether they were involved in the alleged stock price manipulation.
FSS Governor Lee Bok-hyun told reporters Tuesday that the authorities are considering seeking punishments for the corporate body of Kakao and its company executives.
“Once we send the case to the prosecutors later this week, we will be able to clarify our stance,” said the governor, who had served as a prosecutor for two decades before leading the financial watchdog. “The latest case had a significant impact on the market, so we will take stern measures against those responsible for the matter.”
Kakao's illuminated logo is seen on its building in Seongnam, Gyeonggi Province, in this July file photo. Newsis
If the corporate body of Kakao is handed a fine or heavier penalties, the company should unload 17 percent of its 27 percent stake in KakaoBank, renouncing its status as the largest shareholder of the internet-only bank.
Depending on the investigation results, the Fair Trade Commission (FTC) may also prohibit Kakao’s acquisition of SM Entertainment, after the ongoing review of their merger. However, the FTC explained that the investigation will not affect the review, as the antitrust regulator will only look into whether the deal will allow Kakao to monopolize the entertainment market.
Securities analysts advised investors to be cautious about buying Kakao shares.
“Multiple lawsuits and investigations distract the company’s management,” Samsung Securities analyst Oh Dong-hwan said. “The prosecutors are also investigating alleged embezzlements of the KLAY cryptocurrency by the Kakao founder and executives. In addition, Kakao’s subsidiaries are embroiled in controversies over alleged infringements of technologies developed by small companies.”
There is a speculation that Kakao will enter emergency management by the Corporate Alignment council, the group’s de facto control tower.
However, the company has remained cautious about commenting on a series of controversies, because its apology or reorganization could be seen as an admission of guilt regarding the allegations.
“We will sincerely explain our situations during the investigation,” a Kakao official said.