Founder of South Korea's Kakao arrested for suspected stock manipulation (updated)

SM Entertainment Co

23/07/2024 03:48

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      Kim accused of manipulating SM Entertainment stock 
    

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      Founder says no illegal activity was ordered or tolerated
    

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      Kakao shares fall on Tuesday; down 24% YTD 
    

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      Regulatory scrutiny may impact AI and expansion plans
    

  
 (Recasts and adds detail on share move and detention,
paragraphs 1,12; detention details paragraph 7)
    By Joyce Lee
       SEOUL, July 23 (Reuters) - The billionaire founder of
South Korean tech giant Kakao Corp  035720.KS , Kim Beom-su was
arrested on Tuesday on accusations of manipulating stocks during
the acquisition of a K-Pop agency last year. 
    The case is the latest legal twist for Kakao, which runs
South Korea's largest chat app, after the company and another
executive went on trial last year for alleged wrongdoing during
the same acquisition. 
    Kim, who is also known as Brian Kim, is seen as a visionary
in South Korea's digital industry for building Kakao's group of
affiliates - worth 86 trillion won ($62 billion) by assets -
from the ground up since launching the chat app in 2010.
    Any case against him could jeopardise Kakao's investments
into artificial intelligence as well as its overseas expansion
plans, industry experts said.
    Prosecutors say Kim was involved in manipulating the stock
price of SM Entertainment  041510.KQ  in February last year to
hinder a competitor, Hybe  352820.KS , from acquiring it.
    Kim has denied the accusations, saying he never ordered or
tolerated any illegal activity, the company said in a statement.
He has so far not been formally charged. Kakao and Kim's lawyer
did not immediately provide further comment on Tuesday. 
    The high-profile tech entrepreneur is the largest
shareholder of Kakao Corp, with a 24% stake that he and
affiliated entities control.
    Seoul Southern District Court approved the arrest warrant to
prevent the potential destruction of evidence, and because Kim
was a flight risk, a court official said on Tuesday.
    Kim is being held at the Seoul Nambu Detention Centre, a
prosecution spokesperson said. His arrest will last up to 20
days, during which the prosecutors will investigate further
before deciding whether to indict him, according to South Korean
criminal procedure. 
    The outcome of any case against Kim could jeopardise Kakao
group's control of online bank arm KakaoBank Corp  323410.KS ,
since the country's financial rules restrict those convicted of
financial crime from owning a more than a 10% stake in a bank.
    Kakao is also likely to be subject to regulatory scrutiny,
making it tougher for the company to make major decisions on
investments in artificial intelligence (AI) and overseas
business expansion, industry experts said.
    The company plans to introduce new AI services this year.
Kakao Corp shares dropped 3.4% during morning trade to the
lowest since November, after falling 24% year-to-date. 
     ($1=1,389.2700 won)
    

 (Reporting by Joyce Lee in Seoul; Additional reporting by
Jihoon Lee; Editing by Ed Davies, Clarence Fernandez and Matthew
Lewis and Miral Fahmy)
 ((joyce.lee@tr.com;))