'SM Entertainment Stock Manipulation Allegations' Kakao and Bae Jaehyun, Chief Investment Officer, Indicted (Comprehensive)

Baek Jae-hyun, Kakao's Chief Investment Officer, and the corporation Kakao Co., Ltd. have been brought to trial on charges of market manipulation during the dispute over the management rights of SM Entertainment (hereinafter SM Entertainment).

[Image source=Yonhap News]

The Financial Investigation Division 2 of the Seoul Southern District Prosecutors' Office (Chief Prosecutor Park Geon-young) announced on the 13th that Baek, who is charged with violating the Capital Markets Act, was indicted in custody, and Kakao Co., Ltd. was indicted without detention for violating the joint penalty provision. According to the Capital Markets Act, if a representative or others commit violations related to the corporation's business, fines can also be imposed on the corporation. However, this does not apply if the corporation has not neglected its duty of care and supervision to prevent violations.

Baek and others are accused of manipulating the market by purchasing SM shares at high prices a total of 409 times using approximately 240 billion KRW in February, with the intent to set and fix the SM stock price higher than Hive's public tender offer price of 120,000 KRW, thereby obstructing Hive's public tender offer to acquire SM's management rights.

In this process, they are also accused of failing to report large shareholdings of SM Entertainment stock to the financial authorities. Under the Capital Markets Act, if an individual or a special related party holds 5% or more of the issued shares, they must report to the Financial Services Commission or the stock exchange within five days.

Previously, the prosecution requested arrest warrants for Baek and two others, but on the 19th of last month, Judge Kim Ji-sook of the Seoul Southern District Court, who is in charge of warrants, issued an arrest warrant only for Baek, citing concerns of evidence destruction and flight risk. The court dismissed the warrants for Kang Ho-jung, Kakao's Head of Investment Strategy, and Lee Jun-ho, Head of Kakao Entertainment's Investment Strategy Division, stating that although the charges are serious, the objective facts appear to be substantially established based on the secured evidence.

Earlier this year, Kakao engaged in a dispute with Hive over a public tender offer competition to acquire SM Entertainment. During the dispute, Hive claimed that "abnormal stock purchases occurred," raising suspicions of market manipulation by Kakao. The Financial Supervisory Service launched an investigation in February and conducted raids on Kakao, SM Entertainment, and the office of Kim Beom-su, Kakao's founder. By March 28, Kakao and Kakao Entertainment had acquired a total of 39.87% of SM Entertainment's shares, becoming the largest shareholder.

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