Founder of Kakao, South Korean Tech Giant, Arrested Over K-Pop Deal
The billionaire founder of the South Korean technology giant Kakao, Kim Beom-su, was arrested on Tuesday over allegations of stock price manipulation related to the company’s investment in one of the country’s largest K-pop agencies.
A high-profile bidding war broke out over the agency, SM Entertainment, early last year. Prosecutors accused Kakao of manipulating SM Entertainment’s stock price to block Hybe, the company behind BTS, from acquiring the agency, whose roster of artists includes Girls’ Generation, NCT and Aespa.
Kakao ultimately acquired a major stake in SM Entertainment, in a move intended to help it expand abroad by establishing a foothold in K-pop and tapping into the South Korean culture wave.
Last year, prosecutors indicted Kakao’s chief investment officer, Bae Jae-hyun, and the company itself on stock manipulation charges. The Seoul Southern District Court confirmed that Mr. Kim, who is 58 and also goes by Brian, had been arrested Tuesday morning on similar suspicions.
While Mr. Kim has not been formally charged, the court issued an arrest warrant to allow prosecutors to question him in custody, out of concern that he may destroy evidence or flee, prosecutors said. Mr. Kim has denied the allegations.
Kakao said in a statement released last week that Mr. Kim had told staff during a company meeting: “The allegations are not true. I have never instructed or condoned any illegal acts.”
Asked for comment about Mr. Kim’s arrest, a Kakao spokeswoman said that “the current situation is unfortunate.”
Kim Beom-su is a founder of one of South Korea’s biggest technology companies, Kakao.Credit…Agence France-Presse, via Getty Images
Mr. Kim is the first of the newest generation of tech titans in the country to face major criminal allegations. Samsung’s third-generation leader, Lee Jae-yong, was sentenced to prison for bribery in 2021 before he was released on parole the same year. Mr. Lee, now the conglomerate’s executive chairman, was acquitted of separate charges of stock manipulation earlier this year.
Kakao has struggled in recent years with regulatory scrutiny as its business expands. The arrest dealt a blow to the company’s shares, which fell more than 5 percent on Tuesday. The company has lost a third of its value this year.
“The arrest could be Kakao’s biggest crisis,” said Woochan Kim, a finance professor at Korea University Business School. “It would be the job of those who remain at the company to show that it can run well even with the founder not around.”
South Korea’s corporate culture discourages challenging authority, he added, and boards of directors often do not act as an effective check on executives.
Mr. Kim, Kakao’s founder, was celebrated for rising from poverty to build one of South Korea’s leading technology companies. He was the first among five siblings to attend college. He built a messaging app called KakaoTalk in 2010, which would become the basis for his internet empire. At one point, he surpassed Mr. Lee as South Korea’s richest person, with a net worth of more than $13 billion, according to Bloomberg.
Kakao’s suite of apps serves as crucial infrastructure in South Korea, covering banking, payments, ride-hailing, maps and games. KakaoTalk is installed on over 90 percent of phones in the country. The company is worth about $12 billion in market value, in which Mr. Kim has a 24 percent stake.
But Kakao has stumbled in recent years and, with it, Mr. Kim’s net worth has fallen to $3.6 billion. In 2022, a fire at a Kakao data center caused a days-long nationwide outage, raising concerns about a monopoly and prompting President Yoon Suk Yeol of South Korea to order an investigation. A senior Kakao executive resigned after taking responsibility.
