Kakao founder arrested in alleged K-pop stock rigging scheme

Kim Beom-su has been arrested in an alleged K-pop stock rigging fraud.

South Korean billionaire Kim Beom-su was arrested on Tuesday, 23 July in an alleged case of manipulating stock prices of a popular K-pop agency tracing back to a deal last year. However, the founder of Kakao, a messaging service provider, was not formally charged in the case. The prosecutors on the case fear that Beam-su might bury the evidence or flea the country altogether as The Seoul Southern District Court has only issued an arrest warrant to take him into custody with no charges.

Kim Beom-su, center, the founder of the country's tech giant Kakao Corp., leaves a courtroom after a warrant hearing at the Seoul Southern District Court in Seoul, South Korea, Monday, July 22, 2024. (Yoon Dong-jin/Yonhap via AP)(AP)

Billionaire denies accusations of stock rigging

Beom-su who is currently in custody of the police department for stock manipulation of a K-pop agency claimed all accusations against him to be false. In a statement, he said, “The allegations are not true. I have never instructed or condoned any illegal acts,” and his company, Kakao called the incident “unfortunate’, as reported by Quartz. The K-pop agency whose stocks were ricked has been reported as SM Entertainment. The agency is home to popular K-pop groups such as aespa, Girl’s Generation, NCT 127, EXO, SHINee, Super Junior, Red Velvet and more.

The stock rigging, reportedly, happened during a takeover decision last year which was made in order to prevent SM Entertainment's acquisition by HYBE, another major K-pop agency. The two K-pop agencies are the biggest entertainment companies representing prominent groups with the latter being home to K-pop sensation across the globe, BTS. SM Entertainment was ultimately acquired by Kakao.

Kakao’s share drops amid founder’s arrest

Kakao was founded by Kim Beaom-su in the year 2010 and it is headquartered in Jeju City. The company employed more than 10,000 people during the COVID-19 pandemic in 2020. Beom-su enjoys a 24%stake in the company was Korea’s richest man at one point when his net worth was estimated to be more than $13 billion.

However, with his arrest in a stock-rigging case, the shares of the Kakao company dropped by 5% on Tuesday after the news of his arrest spread. This arrest could be the “biggest crisis” faced by the company declared Woochan Kim who is a professor at Korea University Business School. He said, “It would be the job of those who remain at the company to show that it can run well even with the founder not around.”

Last year, Bae Jae-Hyun, who is the chief investment officer of Kakao was also formally accused of stock rigging.