Lee Bok-hyun "Confident in Uncovering the Truth"... What Punishment Will Kakao Face if SM's Market Manipulation Charges Are Proven?

Maximum life imprisonment and fines up to five times the profit if proven
Fines not imposed... Possible from January next year following Capital Markets Act amendment
Lee Bok-hyun: "Highest level of sanctions when violations are found"

Lee Bok-hyun, Governor of the Financial Supervisory Service, is answering questions from the press after the launch event of Shinhan Card's 'Small Business Together, Growth Solution' held at Shinhan Card headquarters in Jung-gu, Seoul on the morning of the 17th.
[Photo by Yonhap News]

Regarding the allegations of market manipulation by Kakao during the acquisition battle for SM Entertainment (SM), Financial Supervisory Service (FSS) Governor Lee Bok-hyun has announced plans to strictly punish illegal activities, drawing significant attention to the level of penalties if Kakao’s charges are proven.

According to industry sources, suspicions of Kakao’s market manipulation arose during the SM acquisition. In February, when a management dispute at SM occurred, former SM Chief Producer Lee Soo-man signed a contract transferring most of his shares to HYBE, which also launched a public tender offer. During this process, allegations of market manipulation affecting the tender offer price surfaced. HYBE filed a complaint with the FSS, stating that during the tender offer period, abnormal purchases amounting to 2.9% of SM’s total issued shares occurred at the IBK Investment & Securities Pangyo branch. In response, the FSS investigated whether Kakao artificially influenced the stock price during the tender offer. An FSS official said, "We cannot disclose specific details," adding, "The matter has been forwarded to the prosecution, and further investigations are underway."

If the FSS and prosecution investigations prove Kakao’s market manipulation charges, criminal penalties under the Capital Markets Act may apply. Article 176 of the current Capital Markets Act prohibits market manipulation and similar acts. Violations can result in liability for damages and imprisonment of at least one year or fines amounting to three to five times the profits gained or losses avoided through the violation. If the profits or avoided losses exceed 5 billion KRW, penalties include life imprisonment or imprisonment of five years or more; if between 500 million KRW and 5 billion KRW, imprisonment of three years or more applies. Additionally, imprisonment may be accompanied by disqualification for up to ten years.

Furthermore, starting next year, fines will be applicable under the current law for the three major unfair trading practices: market manipulation, insider trading, and fraudulent transactions. Currently, market disruption can incur fines up to 500 million KRW, but the three major unfair trading practices are only subject to criminal penalties. Concerns were raised that proving charges and confirming sentences could take a long time, making recovery of criminal proceeds difficult, leading to the proposal of amendments to the Capital Markets Act. The amendment passed the National Assembly plenary session on the 30th of last month after three years and will take effect on January 19 next year. According to the amendment, those who commit market manipulation, insider trading, or fraudulent transactions may be fined up to twice the amount of profits gained or losses avoided through the violation. When the FSS submits the agenda to the Securities and Futures Commission under the Financial Services Commission, the decision on imposing fines will be made through a resolution process.

The FSS has expressed confidence in uncovering the truth regarding Kakao’s market manipulation allegations. Governor Lee Bok-hyun, after attending the launch event of the 'Small Business Together, Growth Solution' held at Shinhan Card headquarters in Jung-gu, Seoul on the 17th, told reporters, "We are confident in uncovering the truth," and explained, "If illegal activities are found, we will impose the highest possible level of sanctions." He added, "Not only in the SM case but also regarding violations related to market order, we will respond strictly," emphasizing, "We plan to take all measures, including imposing the highest possible level of sanctions."

This content was produced with the assistance of AI translation services.