Brian Kim, the billionaire founder of South Korean tech giant Kakao Corp, was arrested on Tuesday on charges of stock manipulation during the 2023 acquisition of SM Entertainment. Kim, known for his significant contributions to South Korea’s digital industry, is accused of inflating SM Entertainment’s stock price to block competitor Hybe’s takeover attempt.
This arrest adds to Kakao’s legal challenges, following the trial of another executive last year for similar allegations related to the same acquisition. As the largest shareholder of Kakao with a 24% stake, Kim’s legal troubles could have far-reaching implications for the company’s future.
Industry analysts suggest that the case could jeopardize Kakao’s control over KakaoBank Corp, as South Korean financial regulations prevent individuals convicted of financial crimes from holding significant stakes in banks. Additionally, regulatory scrutiny is expected to intensify, potentially hindering Kakao’s planned investments in artificial intelligence and its global expansion initiatives.
The Seoul Southern District Court approved Kim’s arrest to prevent potential evidence tampering and flight risk. Kim, who denies any wrongdoing, will remain in custody for up to 20 days while prosecutors investigate further.
Kakao Corp shares fell 5% on Tuesday morning. The company has ambitious plans to roll out new AI services this year, but these legal entanglements cast uncertainty over its strategic direction and market performance.
Please read JAKOTA Index Portfolios Inc. statement on arrest of Kakao founder.
