Financial Supervisory Service Refers Bae Jae-hyun and Kakao to Prosecutors Over 'SM Price Manipulation Allegations'

Kakao Founder Kim Beom-su Excluded from List
"Remaining Suspects to Be Referred Soon"

Kakao founder Kim Beom-su is appearing at the Financial Supervisory Service on the 23rd to be investigated for allegations of stock price manipulation related to the acquisition of SM Entertainment. Photo by Kang Jin-hyung aymsdream@

Regarding the allegations of market manipulation involving SM Entertainment (SM), the Financial Supervisory Service's Capital Market Special Judicial Police (Special Judicial Police) has referred Bae Jae-hyun, Kakao's Chief Investment Officer, and Kakao Corporation to the prosecution.

On the 26th, the Special Judicial Police of the Financial Supervisory Service sent three individuals?CEO Bae, Investment Strategy Director Kang, and Kakao Entertainment Investment Strategy Head Lee?along with their affiliated companies Kakao and Kakao Entertainment, to the prosecution on suspicion of involvement in market manipulation.

According to the Financial Supervisory Service, the three individuals referred to prosecution colluded with the private equity firm One Asia Partners in February this year to interfere with the public tender offer by competitor HYBE in the corporate control battle over SM. They used market manipulation tactics such as placing high-priced purchase orders and closing price intervention orders by investing 2,400 won. They manipulated the market price to rise above or fix it at HYBE's public tender offer price and failed to fulfill the related large shareholder reporting obligations.

Under 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.

The Financial Supervisory Service explained, "Their crimes were carried out through unofficial decision-making processes that were not subject to internal or external controls," adding, "It was confirmed that Kakao and Kakao Entertainment had no internal controls in place to prevent violations, as they sought advice on methods of committing and concealing the crimes through law firms."

Earlier, on the 13th, the Special Judicial Police applied for arrest warrants against the three suspects, including CEO Bae, on charges of violating the Capital Markets Act. The court issued an arrest warrant for CEO Bae, citing concerns over evidence tampering and flight risk.

The Financial Supervisory Service emphasized, "This illegal act undermines the core systems of the Capital Markets Act designed to ensure fair securities trading and corporate control competition, such as unfair trade regulations, the public tender offer system, and the 5% rule," adding, "This case involved organized participation by groups of financial and legal experts, constituting a serious crime that damages the foundation of the capital market."

With the referral of corporations such as Kakao to the prosecution, Kakao's status as a major shareholder of Kakao Bank has become precarious. Under the current Internet Banking Special Act, industrial capital (non-financial major shareholders) must not have been fined or penalized under financial laws, tax crime laws, the Act on the Aggravated Punishment of Specific Economic Crimes, or the Fair Trade Act within the past five years to hold more than 10% of an internet bank's shares. On the 24th, Lee Bok-hyun, Governor of the Financial Supervisory Service, stated, "We are actively and comprehensively reviewing whether to impose penalties on the corporation regarding the recent issues involving Kakao."

However, Kim Beom-su, Kakao's founder and head of the Future Initiative Center, was excluded from the list of those referred this time. The Financial Supervisory Service plans to refer other suspects to the prosecution following additional investigations. On the 23rd, the Special Judicial Police summoned Kim Beom-su as a suspect and investigated him for about 16 hours regarding whether he directly ordered or was informed about the market manipulation allegations.

The Financial Supervisory Service stated, "Among the 18 suspects related to this case, we have prioritized referring these three individuals and two corporations to the prosecution. As evidence of conspiracy to manipulate the market involving the remaining suspects has been confirmed, we will promptly investigate and refer additional suspects in accordance with laws and principles."

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