Financial Supervisory Service Arrests Kakao Chief Investment Officer on 'Market Manipulation Suspicion'... "Supplementary Investigation Ongoing"

Bae Jae-hyun, Head of Investment at Kakao, is heading to the courtroom on the 18th at the Seoul Southern District Court to attend a pre-arrest detention hearing (warrant review).
[Photo by Yonhap News]

In the course of the management rights dispute at SM Entertainment (SM), Bae Jae-hyun, Kakao's Chief Investment Officer, who is suspected of market manipulation, has been detained. The Financial Supervisory Service (FSS) plans to transfer Bae to the prosecution within 10 days after his detention investigation.

On the 19th, the FSS stated regarding Bae, who is suspected of violating the Capital Markets Act, "He is currently held at the Seoul Yeongdeungpo Police Station detention center, and the FSS Capital Markets Special Judicial Police will investigate him while he is detained and transfer him to the prosecution within 10 days."

Earlier, Judge Kim Ji-sook of the Seoul Southern District Court, who is in charge of warrants, conducted a pre-arrest hearing for Bae and issued an arrest warrant, citing "concerns of evidence destruction and flight risk."

However, the arrest warrants requested for Kang Mo, Head of Kakao's Investment Strategy Office, and Lee Mo, Head of Kakao Entertainment's Investment Strategy Division, were dismissed. The court stated, "Although the allegations are serious, it is difficult to see the necessity and reasonableness of detention." It further explained, "Non-custodial investigation is the principle, and coercive measures are allowed only within the necessary and minimal scope, considering the suspects' positions and degree of involvement."

Regarding the court's dismissal decision, the FSS said, "Although the other two individuals face serious criminal allegations, non-custodial investigation is the principle. So far, the investigation has objectively clarified a considerable degree of facts, and it is difficult to consider that there is a risk of flight or evidence destruction beyond the scope of legitimate defense. Considering their positions and involvement, the arrest warrants were dismissed. We will continue supplementary investigations and proceed accordingly."

According to the FSS special judicial police, Bae and others are suspected of investing about 240 billion KRW in February to obstruct the public tender offer by HYBE, a competitor in the SM management rights acquisition battle, by raising SM's stock price above HYBE's tender offer price. They are also suspected of failing to report large stock holdings to financial authorities.

According to the Capital Markets Act, if the total shares held by a person or their special related parties reach 5% or more of the issued shares, they must report this to the Financial Services Commission within five business days.

Earlier this year, HYBE and Kakao engaged in a dispute over the acquisition of SM through public tender offers. During this process, HYBE claimed that "abnormal purchase activities occurred," raising suspicions of market manipulation. Through public tender offers, Kakao and Kakao Entertainment acquired 39.87% of SM shares by March 28 (20.76% and 19.11%, respectively), becoming the largest shareholders.

Bae and others' legal representatives issued a statement denying the allegations after the FSS special judicial police requested the arrest warrant, stating, "It was a legal on-market stock purchase, and there was no market manipulation."

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