On Tuesday, Kim Beom-su, the billionaire founder of South Korea’s tech giant Kakao Corp, was arrested by South Korean authorities on accusations of manipulating stocks during the acquisition of a K-Pop agency last year. This shocking turn of events comes after the company and another executive went on trial last year for alleged wrongdoing during the same acquisition. Kim, often referred to as Brian Kim, is seen as a visionary in South Korea’s digital industry. Since launching the Kakao chat app in 2010, he has built a conglomerate worth 86 trillion won ($62 billion) by assets.
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Allegations and Denials
Prosecutors allege that Kim manipulated the stock price of SM Entertainment in February last year to thwart a competitor, Hybe, from acquiring it. In response, Kakao Corp called the situation “unfortunate” and emphasized that Kim has denied the accusations, stating that he “never ordered or tolerated any illegal activity.” So far, Kim has not been formally charged, according to a company statement .
Impact on Kakao and AI Plans
Industry experts warn that the case against Kim could jeopardize Kakao’s investments in artificial intelligence (AI) and its plans for overseas expansion. The company is set to introduce new AI services this year, but the regulatory scrutiny stemming from Kim’s arrest could hinder these plans. The Seoul Southern District Court approved the arrest warrant to prevent the potential destruction of evidence and due to concerns that Kim was a flight risk .
Impact on Kakao Stock
The news of Kim’s arrest has already impacted Kakao’s stock performance. According to Reuters, Kakao Corp shares fell 5.4% on Tuesday, their largest daily decline since December 2022, and have lost 24% of their value year-to-date. Affiliates Kakaopay and Kakao Games also saw record lows, dropping 7.8% and 5.2%, respectively. Kakaobank, another affiliate, fell 3.8% .
Future Uncertainties
Kim, who is being held at the Seoul Nambu Detention Centre, will be detained for up to 20 days while prosecutors investigate further before deciding whether to indict him. The outcome of the case could jeopardize Kakao group’s control of its online bank arm, KakaoBank Corp, as South Korean financial rules restrict those convicted of financial crimes from owning more than a 10% stake in a bank .
In light of these events, Shina Chung, Kakao’s CEO, is leading efforts to minimize any management vacuum. The term “management vacuum” refers to a gap in leadership that can occur when key executives are absent or removed, leading to uncertainties or delays in decision-making and strategic planning. The company’s plans to expand its AI and overseas operations hang in the balance as the investigation unfolds. This situation shows how corporate management, legal issues, and market stability are all tangled up in today’s tech world.
