The founding father of Kakao Corp. faces charges of price manipulation within the takeover battle for K-pop giant SM Entertainment Co. on Wednesday. This is a turning point for the South Korean web and media industry.
Brian Kim – the built an easy messaging service right into a $22 billion empire spanning social media, content and fintech – faces allegations that he tried to thwart a rival bid from BTS’s agency Hybe Co. by driving up SM’s price. The billionaire entrepreneur is on trial in Seoul alongside three former and current Kakao executives who’re also accused of stock manipulation within the goal company.
It’s a dramatic setback for considered one of South Korea’s best-known entrepreneurs, once praised for helping to rework an economy dominated by dynastic, family-run conglomerates (or chaebols). Kakao now provides news, banking, gaming and taxi services to much of the country’s 50 million people.
At the primary hearing on Wednesday, which was mainly about procedural rules, the presiding judge stressed that he desired to move the case forward efficiently. He scheduled the subsequent hearing for October 8.
1. Who is Brian Kim?
The 58-year-old tycoon, known in Korea as Kim Beom-su, founded the corporate that will develop into Kakao in 2006. Four years later, he launched the highly successful messaging app KakaoTalk, which might develop into the centerpiece of the country’s fifteenth largest conglomerate by assets.
At one point, Kim – who as a boy shared a room with seven relations – briefly surpassed Samsung Electronics CEO Jay Y. Lee to develop into the richest man within the country. His wealth has since plummeted, from a summit from greater than $14 billion to around $3.2 billion this week.
The trial marks a low point in Kim’s rags-to-riches profession and a shift in perception. Kim and other entrepreneurs like Coupang Inc.’s Bom Kim were once celebrated as visionaries who fought off Silicon Valley titans to secure their very own stakes in the web – rivals to the steel firms and shipbuilders that dominate Korea’s business landscape. Kim encouraged his colleagues to call him Brian and to handle one another by their English nicknames, eschewing the titles common in Korean corporate culture.
But because the Internet services grew in power, government officials became more concerned in regards to the way they were squeezing out established players in areas comparable to banking, retail, entertainment and even small corner shops. Kakao’s expansion to greater than 120 subsidiaries also sparked criticism of the corporate’s management.
2. Why is the Kakao founder on trial?
Kim has been in custody since July after the Seoul District Court granted prosecutors’ request for an arrest warrant, citing strong evidence of Kim’s involvement in manipulating SM’s stock price, in addition to concerns about destruction of evidence and the danger of flight.
The following month accused The entrepreneur was charged with market violations throughout the takeover battle, paving the best way for the trial in September.
3. What evidence is there on both sides?
Prosecutors accuse Kakao and its subsidiary Kakao Entertainment Co. of shopping for SM shares price 240 billion won ($179 million) at inflated prices to fend off the competitor. Hybe, the agency that represents the successful boy band BTS, had bought a 15 percent stake from SM founder Lee Soo-man and offered a buyout at 120,000 won per share.
Both Hybe and Kakao were keen to own SM to succeed in a wider audience. Kakao executives are accused of carrying out their alleged maneuver in February 2023, which sent SM shares soaring to record highs. Hybe eventually relented and Kakao and Kakao Entertainment took control of SM in March.
In October, authorities arrested Kakao’s investment chief Bae Jae-hyun in reference to the bidding war, plunging the corporate into crisis. Kim has repeatedly denied any wrongdoing.
Prosecutors are expected to argue in court that Kim and his deputies interfered within the M&A bidding process once they artificially inflated SM’s share price and illegally manipulated market levels.
4. What happens if he’s convicted and what impact would this have on Cocoa?
The current case is about Kim’s role, whether he was directly involved within the alleged crimes or tolerated them. The case could drag on for months, and possibly even longer depending on the final result of the appeals process.
A conviction could have ramifications for each Kakao and the broader economy. Kim faces a jail sentence, which might slow the corporate’s investments in artificial intelligence and hamper overseas expansion and IPOs. Kakao had once considered taking Kakao Mobility Corp., the country’s leading taxi service, public.
Kakao may very well be forced to provide up a part of its 27 percent stake in KakaoBank Corp., the country’s leading web bank. Under Korean law, individuals and firms convicted of economic crimes usually are not allowed to own greater than 10 percent of a financial institution.
In general, this might have a chilling effect on fast-growing firms, as Kakao has been criticized for expanding so quickly that it has put smaller competitors under pressure.
5. Why are so many South Korean CEOs being prosecuted?
Kim is just the newest case in an extended tradition of prosecutions against major corporations. The country has taken steps to implement laws against white-collar crime and corruption in response to public outcry over alleged corporate misconduct within the wake of the 1998 Asian financial crisis.
The turmoil of this era, when the won collapsed and 1000’s of small businesses went bankrupt, has exposed many to the close ties between family-run chaebols and politicians. Ordinary South Koreans query the Consolidation of wealth to a handful and the suffocating effect this has on small businesses and startups.
Many residents now view large corporations as a threat to democracy and economic equality, says Kim Sung-soo, a professor of political science at Hanyang University in Seoul. This has led to public support for the persecution of high-ranking executives like Samsung’s Lee.
At the identical time, others criticize the comparatively lenient sentences. Lee was pardoned and released early.
