A South Korean court on Tuesday acquitted Kakao founder Kim Beom-su of stock manipulation charges related to the firm’s acquisition of K-pop powerhouse SM Entertainment in 2023, removing a major legal cloud hanging over the messenger giant and allowing it to refocus on its artificial intelligence business.
The Seoul Southern District Court ruled that Kim was not guilty of violating the Capital Markets Act. Kakao’s former Chief Investment Officer Bae Jae-hyun and the companies Kakao and Kakao Entertainment were also acquitted of same charges.
Prosecutors had sought a 15-year prison term and 500 million won ($350,000) in fines for Kim in August, alleging he had ordered Kakao executives to manipulate SM Entertainment’s stock price during a bidding war against Hybe, the parent company of BTS’ management agency Big Hit.
Kim was arrested in July and released on bail in October.
The court rejected the charges, saying the evidence was insufficient to prove any collusion or intent to rig prices.
“Based on evidence from the prosecution, it is difficult to recognize that there were discussions to collude in stock manipulation,” the court said.
“Kakao’s stock purchase orders differ significantly from those typically associated with price manipulation, considering the time intervals and methods of purchase. It is also difficult to see whether there was any intent to artificially fix prices at levels higher than normal market values.”
The case dates to 2023 when Kakao and Hybe were fiercely competing over control of SM Entertainment. Prosecutors alleged that Kim ordered trades worth 240 billion won of SM shares above Hybe’s tender offer price, artificially boosting SM’s stock price and thus thwarting Hybe’s acquisition attempt.
In March, Kakao and Kakao Entertainment combined became the largest shareholder in SM Entertainment, after taking over 39.87 percent stake in the agency.
“I would like to thank the court for carefully reviewing the case over a long period of time and reaching this conclusion, Kim told reporters outside the court after the ruling. “I hope this decision will serve as an opportunity for Kakao to move, even slightly, from the shadow of (allegations of) stock price manipulation and price rigging that have hung over Kakao.”
The verdict removes a major concern for Kakao, particularly the risk surrounding its eligibility as a major shareholder in its banking arm, Kakao Bank.
Under current law, any individual or entity convicted of a financial crime within the past five years is barred from holding more than a 10 percent stake of a bank. Had Kim been found guilty, Kakao, which owns 27.16 percent of the bank, could have been forced to divest shares, potentially losing its controlling interest in Kakao Bank.
While the ruling clears the company's legal risk, industry observers say Kim, who is the largest shareholder of Kakao, is unlikely to resume active management duties in the near future. Earlier this year, he had stepped down from his role as co-chair of Kakao’s top decision-making council, the CA Council, citing health reasons. He currently leads the Future Initiative Center, which oversees long-term strategy and new businesses.
Kakao, led by CEO Chung Shin-a, is expected to focus on executing its AI-driven growth strategy and regaining investor and public trust.
"For two years and eight months, Kakao group endured many difficulties due to the investigation and trial," Kakao said in a statement. "The difficulty in responding quickly to rapid market changes is particularly painful. We will strive to overcome this and fulfill our social responsibility."
Following the ruling, shares of Kakao surged 5.95 percent to close at 62,300 won on Tuesday, while Kakao Bank increased 2.84 percent and Kakao Games gained 3.34 percent.
sahn@heraldcorp.com
