Kakao founder arrested for K-pop stock scandal

The Seoul Southern District Court made the decision to take the 58-year-old into custody, citing “concerns of evidence destruction and flight.” The ruling, which came around midnight after hours of deliberation, is a milestone for a sprawling conglomerate that in the span of a few years rose to the pinnacle of the country’s technology industry, then sagged under the weight of government scrutiny. 

Shares in Kakao, which have fallen by about a quarter this year, slid as much as 5.4% in Seoul on Tuesday. Shares in KakaoBank Corp. gained about 2% in active morning trade however. The Korean conglomerate may have to cut its stake in the online fintech affiliate—making room for other investors— ifthe courts find Kim guilty.

Korean authorities have for decades convicted and imprisoned corporate leaders over allegations of graft or other wrongdoing—most recently Jay Y. Lee, now chairman of memory chip and smartphone maker Samsung Electronics Co. Kim, however, is the first of a new breed of tech entrepreneurs to run afoul of the law.

Kim, celebrated for creating a messaging and social-media platform that linked online services from banking to anime content, is facing accusations that he was involved in a stock-rigging scheme during the high-profile takeover of K-pop agency SM Entertainment Co. in 2023. 

His company won a controlling stake in SM after an intense bidding battle with Hybe Co., the label behind boyband sensation BTS. Financial regulators have since accused executives at Kakao and unit Kakao Entertainment Corp. of buying 240 billion won ($173 million) in shares of SM at the time, to disrupt Hybe’s offer.

Kim and Kakao spokespeople have repeatedly denied the allegations and said no illegal activities transpired during the acquisition of SM. A spokesperson for Kakao declined to comment on the arrest warrant on Monday. 

The arrest is a remarkable turn of events for a self-made billionaire who rose from poverty to build Korea’s leading internet firm. 

Kim—who as a boy shared a room with seven family members—founded the company that would become Kakao in 2006. He started the massively successful KakaoTalk mobile messaging app four years later, which would go on to become the heart of an online empire spanning banking, shopping, gaming and ride-hailing. At one point, he surpassed Samsung’s Lee to become the country’s richest person.

But that meteoric ascent also attracted intense scrutiny. Regulators, concerned about Kakao’s widening business reach, instituted measures to safeguard against monopolistic practices. In early 2022, a police investigation into reports that Kim dodged 886 billion won of taxes—stemming from a 2014 merger with rival Daum—wiped out more than $25 billion of market value from Kakao and subsidiaries such as Kakao Pay Corp., Kakao Games Corp. and KakaoBank. The company has called those allegations “groundless.”

Shares in Kakao, the main listed vehicle, have shed some three-quarters of their value since a 2021 lifetime high. Kim’s fortune is now estimated at about $3.6 billion — a fraction of his peak at north of $13 billion. But his group is still the country’s 15th largest conglomerate by assets, with 124 affiliates, according to data from the Fair Trade Commission and the company. 

The latest scandal has ensnared not just Kim, but a number of his lieutenants.

South Korean authorities previously arrested Kakao’s chief investment officer, Bae Jae-hyun, over the bidding war for SM Entertainment. It’s unclear what Kim’s involvement in that case might have been. 

In March, Shina Chung, the former head of its corporate venture-capital arm, became chief executive officer to lead the firm out of crisis.

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