Kakao founder arrested for stock manipulation

South Korean authorities have arrested Kim Beom-su, the billionaire founder of technology giant Kakao Corp, on allegations of stock manipulation. The charges relate to the acquisition of a K-Pop agency last year. Prosecutors claim Kim manipulated the stock price of SM Entertainment in order to hinder a competitor, Hybe, from acquiring it. Kim, also known as Brian Kim, denies the accusations and maintains he never ordered or tolerated any illegal activity.

Kakao Corp, which operates South Korea‘s largest messaging app, expressed regret over the situation. Chief Executive Shina Chung is leading efforts to manage the company during Kim’s absence. The Seoul Southern District Court approved the arrest warrant, citing potential evidence destruction and flight risk as reasons for detaining Kim. He is currently held at the Seoul Nambu Detention Centre for up to 20 days while prosecutors continue their investigation.

The case against Kim poses significant risks to Kakao’s future, potentially impacting investments in artificial intelligence and overseas expansion plans. Industry experts warn that regulatory scrutiny could complicate major business decisions. Kim is the largest shareholder of Kakao Corp, controlling a 24% stake, and any conviction could affect the company’s control over its online banking arm, KakaoBank Corp, due to financial crime restrictions.

Following the news of Kim’s arrest, Kakao Corp shares fell by 5.4%, marking their largest daily drop since December 2022. Affiliates Kakaopay and Kakao Games also hit record lows, dropping by 7.8% and 5.2% respectively, while Kakaobank shares fell by 3.8%. The ongoing legal troubles could further strain the company’s market performance and strategic initiatives.