Kakao Founder Kim Beom-su Arrested Over Stock Manipulation Allegations in K-Pop Agency Bidding War
Kim Beom-su, the billionaire founder of South Korean tech giant Kakao, was taken into custody on Tuesday amid allegations of stock price manipulation related to the company’s investment in SM Entertainment, one of the country’s leading K-pop agencies.
The allegations stem from a high-profile bidding war for SM Entertainment early last year. Prosecutors claim Kakao manipulated the stock price of SM Entertainment to block Hybe, the company behind BTS, from acquiring the agency, which represents popular groups such as Girls’ Generation, NCT, and Aespa.
Kakao ultimately secured a significant stake in SM Entertainment, aiming to leverage its influence in the K-pop industry to expand internationally and capitalize on the global popularity of South Korean culture.
Previously, Kakao’s chief investment officer, Bae Jae-hyun, and the company itself were indicted on similar charges. The Seoul Southern District Court confirmed that Mr. Kim, who is 58 and also known as Brian, was arrested on Tuesday morning on related suspicions. Although not formally charged, the court issued an arrest warrant to allow prosecutors to question him in custody due to concerns about potential evidence destruction or flight. Mr. Kim has denied the allegations.
In a statement released last week, Kakao cited Mr. Kim’s remarks at a company meeting, where he insisted, “The allegations are not true. I have never instructed or condoned any illegal acts.” A Kakao spokeswoman described the arrest as “unfortunate.”
Mr. Kim is the first of South Korea’s new generation of tech leaders to face significant criminal allegations. Comparisons have been drawn to Samsung’s Lee Jae-yong, who was imprisoned for bribery in 2021 and later released on parole. Earlier this year, Mr. Lee, now Samsung’s executive chairman, was acquitted of separate stock manipulation charges.
Kakao has faced increasing regulatory scrutiny as it grows. The arrest of Mr. Kim caused Kakao’s shares to plummet by more than 5 percent on Tuesday, with the company losing a third of its value this year. Woochan Kim, a finance professor at Korea University Business School, remarked, “The arrest could be Kakao’s biggest crisis,” adding that it will be crucial for the company to demonstrate its resilience in the founder’s absence.
South Korea’s corporate culture, which often discourages challenging authority, may exacerbate the situation, as boards of directors may not effectively oversee executives.
Mr. Kim, celebrated for his rags-to-riches story, was the first among five siblings to attend college. He launched KakaoTalk in 2010, which became the foundation of his internet empire. At one point, he was South Korea’s richest person, with a net worth exceeding $13 billion. Kakao’s diverse suite of apps, encompassing banking, payments, ride-hailing, maps, and games, is crucial infrastructure in South Korea, with KakaoTalk installed on over 90 percent of phones in the country. The company’s market value is approximately $12 billion, with Mr. Kim holding a 24 percent stake.
However, recent years have seen Kakao and Mr. Kim’s fortunes decline. A 2022 fire at a Kakao data center caused a nationwide outage, prompting a government investigation and raising monopoly concerns. Subsequently, a senior Kakao executive resigned.
As K-pop’s global influence continues to grow, so do the stakes and scrutiny surrounding major players in the industry.
