(Bloomberg) — South Korean authorities have arrested Kakao Corp. founder Brian Kim on suspicion of market manipulation, making the internet entrepreneur the country’s highest-profile businessman to go to prison in years.
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The Southern Seoul District Court decided to detain the 58-year-old, citing “concerns about evidence destruction and flight.” The verdict, handed down around midnight after hours of deliberation, marks a milestone for the conglomerate that rose to the pinnacle of South Korea’s tech industry in just a few years before withering under the strain of government scrutiny.
Kakao shares, which have fallen by about a quarter this year, fell 5.4% in Seoul on Tuesday, while Kakao Bank shares rose about 2% in active morning trading.If the court finds Kim guilty, the South Korean conglomerate may have to cut back on investments in online fintech companies to give other investors more breathing room.
South Korean authorities have convicted and jailed corporate executives for decades on suspicion of corruption and other wrongdoings, most recently Jay Lee, the current chairman of memory chip and smartphone maker Samsung Electronics Co. But Kim represents the first of a new type of tech entrepreneur who has run afoul of the law.
Kim, who is credited with building a messaging and social media platform that connects online services from banking to anime content, faces accusations that he was involved in a stock manipulation scheme following his 2023 acquisition of K-pop agency SM Entertainment.
His company won control of SM after a fierce bidding war with Hyve, the label of boy band BTS. Financial regulators later accused executives of Kakao and its subsidiary Kakao Entertainment of buying 240 billion won ($173 million) of SM shares to thwart Hyve’s takeover bid.
Kim and a Kakao spokesman have repeatedly denied the allegations and said no illegal activity occurred during the SM takeover. A Kakao spokesman declined to comment on Monday about the arrest warrant.
The arrest marks a surprising turn of events for a self-made billionaire who rose from poverty to build one of South Korea’s leading internet companies.
The story continues
Mr Kim, who grew up sharing a room with his family of seven, founded what would become Kakao in 2006. Four years later he launched the hugely successful KakaoTalk mobile messaging app, which became the centrepiece of an online empire that included banking, shopping, gaming and ride-hailing. At one point he surpassed Samsung’s Mr Lee to become South Korea’s richest man.
But this rapid growth has also drawn intense scrutiny. Concerned about Kakao’s expanding scope, regulators have taken steps to prevent monopolistic behavior. In early 2022, a police investigation into reports that Kim evaded 886 billion won in taxes stemming from its 2014 merger with rival Daum wiped out more than $25 billion in the market capitalization of Kakao and its subsidiaries, including Kakao Pay, Kakao Games and Kakao Bank. The company has called the allegations “baseless.”
Shares in Kakao, a major listed company, have lost about three-quarters of their value since hitting an all-time high in 2021. Kim’s fortune is now estimated at about $3.6 billion, a fraction of its peak of more than $13 billion. But his group remains South Korea’s 15th-largest conglomerate by assets, with 124 affiliates, according to data from the Fair Trade Commission and the company.
The latest scandal has not only implicated Kim Jong Un but several of his closest associates.
South Korean authorities previously arrested Kakao’s chief investment officer, Bae Jae-hyun, over a bidding war for SM Entertainment. It was unclear what Kim’s connection to that case was.
In March, Shina Chong, a former head of the company’s corporate venture capital division, was brought in as CEO and helped rescue the company from crisis.
–With assistance from Shinhye Kang, Mayumi Negishi, Lynn Doan, and Yasufumi Saito.
(Updates share price in second paragraph)
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