By Erika Koutroumpa,
2024 has been a year of dramatic turns for one of South Korea’s leading tech conglomerates, Kakao Corp. In a shocking development this July, its founder, Kim Beom-su, became the highest-profile tech executive to face imprisonment since 2017, marking a significant moment in Korea’s corporate history.
Kakao Corp was founded by Kim Beom-su, also known as Brian Kim, who has played an instrumental role in shaping the company into a powerhouse within the Korean tech industry. Kim holds a substantial 24% stake in Kakao, which has grown from a simple messaging app into a sprawling conglomerate. KakaoTalk, the company’s flagship product, has become the most widely used communication tool in South Korea, with the company’s total assets reaching $62 billion since its founding in 2010. This meteoric rise has positioned Kakao as the 15th largest conglomerate in South Korea —a remarkable achievement in a country where the economic landscape is dominated by long-established chaebols or family-controlled conglomerates.
Kakao’s expansion has been relentless, diversifying into numerous sectors such as telecommunications, e-commerce, banking, entertainment, and more recently, artificial intelligence. The company’s ambition seemed boundless, particularly evident in March 2023, when Kakao acquired nearly 40% of SM Entertainment’s stocks. This acquisition came after a fierce bidding war with HYBE, the entertainment giant behind global sensation BTS. Reports suggest that Kim Beom-su aggressively purchased SM Entertainment shares for four consecutive days, driving up the stock’s market value in an attempt to outsmart HYBE. Despite HYBE managing to secure 14.8% of the shares, their efforts to finalize the acquisition were hampered by the soaring stock prices.
However, this aggressive strategy led to serious legal repercussions. In July 2024, Kim Beom-su was indicted by the Seoul Metropolitan Police on charges of stock manipulation, involving 110 billion won, over a four-day period in February 2023. He was also accused of failing to make the required declaration after obtaining more than 5% of SM Entertainment’s shares. The severity of the charges prompted authorities to issue an arrest warrant, citing concerns about Kim potentially destroying evidence or fleeing the country. Alongside Kim, other key figures in Kakao were implicated, including former CEO, Hong Eun-taek and current Kakao Entertainment CEO, Kim Sung-soo. Although not detained, they too face significant scrutiny. Additionally, Kakao’s chief investment officer, Bae Jae-hyun, is under investigation for his alleged involvement in the case. All accused parties have consistently denied any wrongdoing, insisting they were not engaged in illegal financial activities related to SM Entertainment.
The potential impact of these legal challenges on Kakao Corp. is profound. As the company grapples with these accusations, its ambitious plans for global expansion, particularly in the field of artificial intelligence, are expected to face significant delays or possibly be halted altogether. Moreover, the legal restrictions imposed by Korean law on those convicted of financial crimes could have far-reaching consequences. If convicted, Kim Beom-su and, by extension, Kakao Group, may lose the ability to control KakaoBank, one of Korea’s leading e-banking services. This is because Korean law prohibits individuals involved in financial crimes from owning more than 10% of a bank’s shares. Such an outcome could weaken Kakao’s position in the competitive financial sector and diminish investor confidence in the broader Kakao conglomerate.
As Kakao Corp navigates this turbulent period, the stakes have never been higher. The company, which has long been a symbol of innovation and success in South Korea, now faces an uncertain future. The outcome of the legal proceedings against Kim Beom-su and other executives will likely shape the trajectory of Kakao for years to come. Whether Kakao can emerge from this crisis and regain its momentum remains to be seen. For now, the company’s ambitious plans for growth, particularly in artificial intelligence and global markets, hang in the balance, as the shadow of legal battles looms large over one of South Korea’s most iconic tech giants.
References
- Korea tech tycoon charged in K-pop share rigging case. BBC News. Available here
- Billionaire founder of Kakao arrested in K-pop stock manipulation case. Financial Times. Available here
- Founder of South Korea’s Kakao arrested for suspected stock manipulation, Reuters. Available here
- Kakao founder indicted over alleged stock manipulation involving SM Entertainment acquisition. Yonhap News. Available here
- South Korea prosecutors indict Kakao group founder on stock manipulation charges, Yonhap reports. Reuters. Available here
