On Wednesday, South Korean legal authorities announced the issuance of an arrest warrant for Brian Kim, the visionary behind the digital powerhouse Kakao, linked to investigations of purported market manipulation during a competitive acquisition of SM Entertainment, one of the nation’s leading music companies, in 2023.
This development trailed an initiative by the Seoul prosecutors to scrutinize Kim’s alleged role in the manipulation of the stock prices of SM Entertainment a week prior.
Inquiries directed to Kakao for comments before this report were not returned.
In a pivotal move in March 2023, Kakao, alongside its affiliate, Kakao Entertainment, clinched a dominant position in SM Entertainment by securing a 39.9% share following a heated bidding contest. Competing against Hybe, the entity behind the famous K-pop group BTS under the agency BigHit, Kakao proposed a buying price of 150,000 KRW ($115) per share, outbidding Hybe’s initial proposal of 120,000 KRW (~$87) per share, through a public tender offer.
A public tender offer typically involves a bid to buy shares directly from the shareholders of the company being targeted within a specified timeframe, with the aim of acquiring control over the said company.
Kakao is now under scrutiny for allegedly engaging in strategic purchases amounting to KRW 240 billion (about $174 million) across 553 transactions in February 2023, ostensibly inflating SM Entertainment’s stock prices beyond Hybe’s offer and leading to the latter retracting its bid, according to reports.
The actions of not disclosing these substantial stock acquisitions to the financial regulators have also attracted criticism towards Kakao.
Jae-Hyun Bae, the chief investment officer of Kakao, found himself under arrest in October following accusations of manipulating stock prices in the aftermath of the acquisition, with his trial ongoing.
Subsequent to the March acquisition, Hybe divested a share of its stake in the agency to Kakao, bringing down its ownership to 8.8% from 15.8%.
Since its inception in 2006, Kakao has emerged as a colossal name in South Korea’s internet domain, offering a multifaceted array of services including the Kakao Talk messaging app, Kakao Mobility taxi service, Kakao Bank online banking, the Melon music streaming service, and Kakao Webtoon comics hosting platform.
Should it be determined that Kakao’s investment chief and other executives at Kakao Entertainment breached the South Korea’s Capital Markets Act, resulting in penalties more severe than a fine, the nation’s financial authority might mandate Kakao to relinquish at least a 10% stake in its banking venture, Kakao Bank.
In accordance with South Korea’s mobile banking legislation, any non-financial entity holding over 10% of the voting rights in mobile-only banks must have a clean record, free from violations of financial or fair trade laws, including the Capital Markets Act, within the prior five years.
Compiled by Techarena.au.
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