Prosecutors seek arrest warrant for Kakao founder over suspected stock manipulation

Prosecutors on Wednesday requested an arrest warrant for Kim Beom-su, the founder of Kakao Corp., on charges of involvement in suspected illegal stock manipulation during the tech giant’s acquisition of K-pop powerhouse SM Entertainment last year.

The Seoul Southern District Prosecutors Office filed a warrant for Kim over allegations of violating the Financial Investment Services and Capital Markets Act. The move comes a week after prosecutors grilled Kim for about five hours on suspicions the Kakao Corp. founder and several others had inflated SM Entertainment’s share price in a bid to acquire a controlling stake in the K-pop agency during a competitive bidding war against Hybe. Hybe is the management agency parent of K-pop phenom BTS.

Kim’s attorneys immediately released a statement saying that the acquisition was merely a legitimate stock purchase conducted on the market.

“We express our regret over the prosecution’s decision to file an arrest warrant. Kim has never ordered nor tolerated any forms of illegal actions tied to the purchase of shares in SM Entertainment,” the statement read. "It was a legitimate stock purchase on the market in a bid to expand the company portfolio."

Kim admitted that he was informed of plans to acquire shares in SM Entertainment, but denied knowledge of details surrounding the purchase plan.

Prosecutors have accused Kim and other Kakao executives of inflating SM Entertainment’s share price above Hybe’s tender offer price by funneling in some 240 billion won ($174 million) and purchasing shares at higher prices. The purchases were carried out in 553 occasions in mid-to-late February last year. Kakao also failed to report its stake during the bidding war, prosecutors added.

SM Entertainment’s shares were artificially inflated above 120,000 won per share — the fixed price at which Hybe was purchasing shares from investors. Hybe had initially acquired a 14.8 percent stake in the agency from its founder Lee Soo-man and offered to buy additional shares from small shareholders at the same price. However, the significant rise in the agency’s share price led to Hybe’s eventual withdrawal from the takeover war.

In March last year, Kakao and its subsidiary Kakao Entertainment secured a controlling 39.87 percent stake in SM Entertainment.

Previously, prosecutors indicted Kakao Chief Investment Officer Bae Jae-hyun and the company itself on similar charges of stock manipulation.