Kakao Founder Arrested Amid Stock Manipulation Allegations

Kim Beom-su, founder of Kakao Corp, was arrested on accusations of stock manipulation during a K-Pop agency's acquisition. This could jeopardize Kakao's AI investments and expansion plans. Prosecutors claim Kim manipulated SM Entertainment's stock price to thwart Hybe's acquisition attempt. Kim denies the accusations. Kakao shares dropped 3.4%.

The billionaire founder of South Korean tech giant Kakao Corp, Kim Beom-su was arrested on Tuesday on accusations of manipulating stocks during the acquisition of a K-Pop agency last year. The case is the latest legal twist for Kakao, which runs South Korea's largest chat app, after the company and another executive went on trial last year for alleged wrongdoing during the same acquisition.

Kim, who is also known as Brian Kim, is seen as a visionary in South Korea's digital industry for building Kakao's group of affiliates - worth 86 trillion won ($62 billion) by assets - from the ground up since launching the chat app in 2010. Any case against him could jeopardise Kakao's investments into artificial intelligence as well as its overseas expansion plans, industry experts said.

Prosecutors say Kim was involved in manipulating the stock price of SM Entertainment in February last year to hinder a competitor, Hybe, from acquiring it. Kim has denied the accusations, saying he never ordered or tolerated any illegal activity, the company said in a statement. He has so far not been formally charged. Kakao and Kim's lawyer did not immediately provide further comment on Tuesday.

The high-profile tech entrepreneur is the largest shareholder of Kakao Corp, with a 24% stake that he and affiliated entities control. Seoul Southern District Court approved the arrest warrant to prevent the potential destruction of evidence, and because Kim was a flight risk, a court official said on Tuesday.

Kim is being held at the Seoul Nambu Detention Centre, a prosecution spokesperson said. His arrest will last up to 20 days, during which the prosecutors will investigate further before deciding whether to indict him, according to South Korean criminal procedure. The outcome of any case against Kim could jeopardise Kakao group's control of online bank arm KakaoBank Corp, since the country's financial rules restrict those convicted of financial crime from owning a more than a 10% stake in a bank.

Kakao is also likely to be subject to regulatory scrutiny, making it tougher for the company to make major decisions on investments in artificial intelligence (AI) and overseas business expansion, industry experts said. The company plans to introduce new AI services this year. Kakao Corp shares dropped 3.4% during morning trade to the lowest since November, after falling 24% year-to-date.

($1=1,389.2700 won)

(With inputs from agencies.)