(Bloomberg) — South Korean authorities arrested Kakao Corp. founder Brian Kim on allegations of market manipulation, making the Internet entrepreneur the country’s most prominent business figure in years and ending up in prison.
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The Seoul Southern District Court made the decision to take the 58-year-old into custody, citing “concerns about destruction of evidence and escape.” The decision, made around midnight after hours of deliberation, is a milestone for a booming conglomerate that, in the space of a few years, rose to the pinnacle of the country’s technology industry, then buckled under the weight of government scrutiny.
Kakao shares, which have fallen by about a quarter this year, fell as much as 5.4% in Seoul on Tuesday. However, shares of KakaoBank Corp. gained about 2% in active morning trading. The Korean conglomerate may have to reduce its stake in the online fintech affiliate – opening space for other investors – if courts find Kim guilty.
Korean authorities have for decades convicted and imprisoned corporate leaders over allegations of corruption or other wrongdoing — most recently, Jay Y. Lee, now chairman of memory chip and smartphone maker Samsung Electronics Co. Kim, however, is the first of a new generation of technology entrepreneurs break the law.
Kim, famous for creating a messaging and social media platform that connected online services from banking to anime content, is facing accusations of being involved in a stock manipulation scheme during his high-profile acquisition of K-pop agency SM Entertainment Co. in 2023.
His company won a controlling stake in SM after an intense bidding battle with Hybe Co., the record label behind boyband sensation BTS. Financial regulators have since accused executives of Kakao and its Kakao Entertainment Corp unit. of buying 240 billion won ($173 million) worth of SM shares at the time, to derail Hybe’s bid.
Spokespeople for Kim and Kakao have repeatedly denied the allegations and said no illegal activities occurred during the SM takeover. A spokesman for Kakao declined to comment on the arrest warrant Monday.
The arrest is a remarkable turnaround for a multimillionaire who rose from poverty to build Korea’s leading Internet company.
Kim – who as a boy shared a room with seven family members – founded the company that would become Kakao in 2006. He started the hugely successful mobile messaging app KakaoTalk four years later, which would become the heart of an online empire that spans banking, shopping, gaming and carpooling. At one point, he surpassed Samsung’s Lee to become the richest person in the country.
But this meteoric rise has also drawn intense scrutiny. Regulators, concerned about the expanding reach of Kakao’s business, have instituted measures to safeguard against monopolistic practices. In early 2022, a police investigation into reports that Kim dodged 886 billion won in taxes – stemming from a 2014 merger with rival Daum – wiped more than US$25 billion from the market value of Kakao and subsidiaries. such as Kakao Pay Corp., Kakao Games Corp. . and KakaoBank. The company called these allegations “baseless.”
Shares in Kakao, the main listed vehicle, have lost about three-quarters of their value since their all-time high in 2021. Kim’s fortune is now estimated at about $3.6 billion – a fraction of its peak of about of 13 billion dollars. But his group is still the country’s 15th largest conglomerate by assets, with 124 affiliates, according to data from the Fair Trading Commission and the company.
The latest scandal involved not only Kim, but several of his lieutenants.
South Korean authorities previously arrested Kakao’s chief investment officer Bae Jae-hyun over the bidding war for SM Entertainment. It is unclear what Kim’s involvement in this case might have been.
In March, Shina Chung, former head of the corporate venture capital arm, became CEO to lead the company out of the crisis.
–With assistance from Shinhye Kang, Mayumi Negishi and Lynn Doan.
(Updates share prices in second paragraph)
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