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The billionaire founder of South Korea’s leading internet company Kakao has been arrested in connection with alleged stock manipulation during last year’s heated bidding battle for a K-pop agency.
Seoul’s Southern District Court issued the arrest warrant on Tuesday for Brian Kim, citing concerns about destruction of evidence and flight risk. It is the latest legal twist for the internet giant as the group faces closer regulatory scrutiny.
Kakao took over SM Entertainment last year after winning an intense bidding contest with Hybe, the agency behind K-pop sensation BTS. But financial regulators have accused Kakao executives of buying Won240bn ($173mn) of SM shares to undermine Hybe’s tender offer.
Kim has denied involvement in any illegal activities connected to the SM acquisition. Kakao’s chief investment officer Bae Jae-hyun is standing trial for his involvement in the case. Bae has also denied any wrongdoing.
Kim has been celebrated as one of the country’s most successful internet entrepreneurs after creating Kakao’s popular messenger app in 2010. He is one of South Korea’s few self-made billionaires — a rare feat in a country where the economy is dominated by a handful of big family-run conglomerates known as chaebol.
Rising from poverty, he has built an internet giant whose businesses range from social media and internet portals to online banking, shopping and gaming. Kakao is now the country’s 15th largest conglomerate by assets, according to the Korea Fair Trade Commission.
Kim is the most high-profile businessman to be taken into custody in South Korea in years. Samsung Electronics chair Lee Jae-yong was arrested in 2017 on corruption charges but was later pardoned. There is currently a separate case against him alleging stock price manipulation and accounting fraud.
Kakao’s rapid expansion over the past decade has sparked criticism that the group is hurting local bricks-and-mortar stores. It has become a main target of scrutiny as South Korean authorities strengthen regulations against internet giants.
Kim’s legal trouble clouds Kakao’s business prospects at a time when the group is accelerating investments in artificial intelligence and expanding its overseas presence with digital comics known as webtoons. Kakao plans to introduce new AI services this year.
In a statement, Kakao expressed regret over Kim’s arrest and said it would do its best to minimise any leadership vacuum.
Kim is the largest Kakao shareholder: he and his affiliated parties own a 24 per cent stake. If found guilty, he may lose control of online lender KakaoBank, with those convicted of financial crimes barred from owning a stake of more than 10 per cent in a bank under South Korean laws.
Kakao’s share price has fallen by 77 per cent since hitting a record high in 2021, giving it a current market valuation of Won17.4tn. Its stock dropped 4.6 per cent on Tuesday, while the benchmark Kospi rose 0.4 per cent.
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