Kakao Executive Holding Firm Despite 'SM Price Manipulation Conspiracy' Allegations

Former Kakao Chief Investment Officer Bae Jae-hyun is heading to the courtroom to attend a detention hearing (warrant review) held at the Seoul Southern District Court on October 18 last year.
[Image source=Yonhap News]

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As Bae Jae-hyun, Kakao's Chief Investment Officer (CIO), who is suspected of manipulating SM Entertainment (SM) stock prices, steps down from his position as an inside director, the possibility of a large-scale executive reshuffle is gaining traction. Although some executives facing similar allegations as Bae remain in their positions, it is expected that changes will occur once the leadership transition is completed.

According to industry sources on the 7th, Kang Ho-jung, Head of Kakao's Investment Strategy Office, and Lee Jun-ho, Head of Kakao Entertainment's Investment Strategy Division, who are also accused of violating capital market laws alongside Bae Jae-hyun, are maintaining their current executive roles. Kang is a key aide working closely with Bae, while Lee is considered a close associate of Kim Sung-soo, the co-CEO of Kakao Entertainment, who is scheduled to be replaced.

There is growing speculation both inside and outside the company about the possibility of their replacement. Since Bae, who was indicted and detained, recently voluntarily resigned as an inside director of Kakao, discussions have emerged suggesting that changes may also occur regarding Kang and Lee's positions. Although the court accepted Bae's bail request, it imposed conditions such as payment of a bail bond, submission of pledges related to evidence tampering and travel restrictions, and prohibition of contact with suspects, witnesses, and others involved in the case, which still restrict his activities. In particular, Kang is also serving as an auditor for Kakao Mobility, which is increasing pressure for his replacement.

The Financial Supervisory Service recently judged that Kakao Mobility's accounting of approximately 20% of taxi fare commissions as revenue in its franchise taxi business constituted accounting fraud. Since 16-17% of the 20% was returned to transportation companies under the pretext of advertising and marketing participation, only 3-4% should have been recognized as revenue. It was found that the company intentionally inflated its revenue by as much as 300 billion KRW last year alone.

Accordingly, the Financial Supervisory Service decided to impose a fine of about 8 billion KRW and recommended the dismissal of Kang, who is serving as the company's auditor, and the CEO.

However, unlike Bae, Kang and Lee have not yet been indicted after being sent to prosecution, making personnel actions difficult. An industry insider said, "There is the presumption of innocence, and since the trial has not yet begun, it seems difficult for the company to take action. Once the CEO replacement is finalized, it is highly likely that decisions regarding their positions will be made sequentially."

Jeong Shin-ah, the designated CEO of Kakao, is expected to officially take office after the shareholders' meeting and board of directors meeting at the end of this month, and the designated co-CEOs of Kakao Entertainment, Kwon Ki-soo and Jang Yoon-jung, will also begin their official terms around the same time.

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