SOUTH Korean authorities have arrested Kakao Corp founder Brian Kim over allegations of market manipulation, making the internet entrepreneur the most prominent business figure in the country in years to wind up in jail.
The Seoul Southern District Court made the decision on Tuesday (Jul 23) to take the 58-year-old into custody, citing “concerns of evidence destruction and flight.”
The ruling, which came around midnight after hours of deliberation, is a milestone for a sprawling conglomerate that in the span of a few years rose to the pinnacle of the country’s technology industry, then sagged under the weight of government scrutiny.
Shares in Kakao, which have fallen by about a quarter this year, slid as much as 2 per cent before bouncing back in Seoul on Tuesday.
However, shares in KakaoBank Corp surged more than 11 per cent in active morning trade. The conglomerate may have to cut its stake in the online fintech affiliate – making room for other investors – if the courts find Kim guilty.
South Korean authorities have for decades convicted and imprisoned corporate leaders over allegations of graft or other wrongdoing — most recently Jay Lee, now chairman of memory chip and smartphone maker Samsung Electronics. Kim, however, is the first of a new breed of tech entrepreneurs to run afoul of the law.
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Kim – celebrated for creating a messaging and social-media platform that linked online services from banking to anime content – is facing accusations that he was involved in a stock-rigging scheme during the high-profile takeover of K-pop agency SM Entertainment in 2023.
His company won a controlling stake in SM after an intense bidding battle with Hybe, the label behind boyband sensation BTS.
Financial regulators have since accused executives at Kakao and unit Kakao Entertainment Corp of buying 240 billion won (S$232.7 million) in shares of SM at the time, to disrupt Hybe’s offer.
Kim and Kakao spokespeople have repeatedly denied the allegations and said no illegal activities transpired during the acquisition of SM. A spokesperson for Kakao declined to comment on the arrest warrant.
The arrest is a remarkable turn of events for a self-made billionaire who rose from poverty to build South Korea’s leading internet firm.
Kim, who as a boy shared a room with seven family members, founded the company that would become Kakao in 2006.
He started the massively successful KakaoTalk mobile messaging app four years later, which would go on to become the heart of an online empire spanning banking, shopping, gaming and ride-hailing. At one point, he surpassed Samsung’s Lee to become the country’s richest person.
But that meteoric ascent also attracted intense scrutiny.
Regulators, concerned about Kakao’s widening business reach, instituted measures to safeguard against monopolistic practices.
In early 2022, a police investigation into reports that Kim dodged 886 billion won of taxes – stemming from a 2014 merger with rival Daum – wiped out more than US$25 billion of market value from Kakao and subsidiaries such as Kakao Paya, Kakao Games and KakaoBank. The company has called those allegations “groundless”.
Shares in Kakao, the main listed vehicle, have shed some three-quarters of their value since a 2021 lifetime high.
Kim’s fortune is now estimated at about US$3.6 billion – a fraction of his peak at north of US$13 billion. But his group is still the country’s 15th largest conglomerate by assets, with 124 affiliates, according to data from the Fair Trade Commission and the company.
The latest scandal has ensnared not just Kim, but a number of his lieutenants.
South Korean authorities previously arrested Kakao’s chief investment officer, Bae Jae Hyun, over the bidding war for SM Entertainment. It’s unclear what Kim’s involvement in that case might have been.
In March, Shina Chung, the former head of its corporate venture-capital arm, became chief executive officer to lead the firm out of crisis. BLOOMBERG
