Kakao founder Kim Beom-su has been arrested on charges of manipulating SM Entertainment’s stock prices. Known as the “father of KakaoTalk,” Kim established the company’s Management Innovation Committee in November last year to lead organizational reforms and help Kakao navigate its crisis.
Judge Han Jung-seok of the Seoul Southern District Court issued an arrest warrant for Committee Chairman Kim on July 23, following a pre-trial detention hearing held the previous day. This development has shocked Kakao, which is already reeling from the arrest of former Chief Investment Officer Bae Jae-hyun on similar allegations.
Kakao’s legal troubles began in February last year, when the company bid to acquire SM Entertainment. Kakao aimed to combine SM’s artist intellectual property, discovery expertise, and business capabilities with its own to enter the global entertainment market. Authorities suspect that Kakao invested 240 billion won to inflate SM’s stock price to fend off competition from HYBE, thereby engaging in stock price manipulation. Kakao is also accused of failing to disclose its ownership of over 5% of SM shares, violating bulk shareholding reporting regulations.
Prosecutors have concluded that stock manipulation was approved during Kakao’s Investment Review Committee meetings, involving Kim and Bae. They have obtained both material and testimonial evidence supporting Kim’s involvement, including messages between Kakao employees indicating that “Kim directed investments through a private equity fund to secure favorable shares.” While Kim may not have directly ordered the actions, he is suspected of being aware of and implicitly condoning them.
With Kim’s arrest, concerns have arisen about the impact on Kakao’s ongoing reforms and management restructuring. The IT industry points out that significant investments are needed for AI-related projects, and Kim’s absence could hinder Kakao’s efforts to develop future growth engines.
“Kakao was just beginning to transition from a decentralized management system to a centralized one when this major risk emerged,” an IT industry insider said. “With Kim’s arrest, new business ventures and international expansions are inevitably facing setbacks.”
Kakao has expressed its intention to launch AI as a Service (AIaaS) within the year, although specific details about the service’s form and direction remain undisclosed.
According to financial industry sources, the Internet-Only Bank Act stipulates that major shareholders of internet banks must not have been convicted of certain financial crimes or violations in the past five years. If found non-compliant due to such dual liability provisions, Kakao could be ordered to dispose of its bank shares exceeding the 10% ownership limit.
In the worst-case scenario, Kakao may have to sell 17.17% of its KakaoBank shares within six months.
