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Kakao Chairman Indicted for Stock Manipulation in SM Entertainment Acquisition

Kakao Chairman Kim Beom Soo
Kakao Chairman Kim Beom Soo is facing charges for manipulating SM Entertainment's stock prices. Photo via Wikimedia Commons.

On August 8, KST, the Seoul Southern District Prosecutor’s Office, indicted Kim Beom Soo, the founder and chairman of Kakao, for violating the Capital Market Act. This indictment marks a significant turn in the ongoing legal drama, as Kim will face trial while in detainment.

The Kakao Chairman faces trial for allegedly manipulating SM Entertainment stock prices during a high-profile acquisition battle

Moreover, charges against Kim Beom Soo are severe, centering around allegations that he manipulated the stock prices of SM Entertainment in February 2023. At that time, HYBE Labels, a major competitor, had issued a tender offer at 120,000 KRW per share in a bid to acquire SM Entertainment.

In a bold move to thwart HYBE’s acquisition, Kim Beom Soo, alongside Kakao, allegedly conspired with the private equity firm One Asia Partners. Together, they reportedly mobilized over 240 billion KRW (approximately $175 million USD), purchasing a significant amount of SM stocks at inflated prices. This strategic action was intended to fix SM’s stock prices above HYBE’s offer, effectively blocking HYBE from securing a controlling stake in the company.

In addition to Kim Beom Soo, former Kakao CEOs Hong Eun Taek and Kim Sung Soo were also implicated in the scheme. Both were indicted on the same charges, although they will face trial without detainment.

The indictment of such high-profile figures has sent shockwaves through the business community and beyond. With the trial looming, the outcome could have far-reaching implications for corporate governance and market practices in South Korea.

As the case unfolds, many are watching closely to see how this legal battle will impact not only Kakao and SM Entertainment but also the broader entertainment and tech industries.

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Kakao Acquisition of SM Entertainment Formally Approved by Korea Fair Trade Commission

The Korea Fair Trade Commission (FTC) has given its nod to the merger and acquisition (M&A) deal between Kakao and SM Entertainment, albeit with a watchful eye and certain conditions attached.

Korea Fair Trade Commission Approves Kakao SM Entertainment Acquisition

The approval, granted on May 2 KST, marks a significant development in the Korean music industry, as it brings together two major players under one umbrella. However, concerns regarding potential anti-competitive practices prompted the FTC to impose restrictions aimed at safeguarding market dynamics.

Kakao, renowned as a dominant force in digital music planning, production, and distribution through its flagship platform Melon, joined forces with SM Entertainment, a heavyweight in the realm of music production. The prospect of these two powerhouses merging raised eyebrows at the FTC, who feared that it could stifle competition and lead to monopolistic tendencies in the market.

The commission identified two plausible scenarios that could tilt the scales of competition unfavorably. Firstly, there’s the possibility of Kakao and SM Entertainment forming an exclusive partnership, leveraging Melon’s reach to corner the market on digital music distribution. Secondly, concerns were raised about Melon prioritizing content from its subsidiaries, potentially sidelining offerings from other entities and distorting fair competition.

The Future of SM Entertainment

To address these apprehensions, the FTC outlined stringent measures that Kakao must adhere to. Kakao is mandated to provide digital music and content to all competing streaming platforms upon request, barring any valid reasons for refusal. Moreover, the content must be furnished equitably and promptly to ensure a level playing field for all market participants.

In addition to these stipulations, a monitoring body will be instituted to keep a vigilant eye on Melon’s operations for a duration of three years. This watchdog entity will scrutinize Melon’s activities, specifically looking out for any signs of preferential treatment towards affiliated companies, thereby ensuring compliance with fair trade practices.

The FTC’s decision reflects a balancing act between fostering innovation and competition while preventing the consolidation of undue market power. By imposing these conditions, the commission aims to uphold the principles of fair competition and safeguard the interests of consumers and market players alike. As Kakao and SM Entertainment embark on this new chapter of collaboration, their adherence to these regulatory measures will be closely watched, shaping the trajectory of the Korean music industry in the years to come.

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Kakao Addresses Plans to Sell SM Entertainment

Kakao Entertainment has officially refuted ongoing rumors about the potential sale of SM Entertainment, putting an end to speculations that emerged towards the end of the previous year.

Kakao Denies Rumors of SM Entertainment Sale Amid Controversy and Audit

The rumors gained traction amid controversies surrounding stock price manipulation during Kakao Entertainment’s acquisition of SM Entertainment, which led to the arrest of Chief Investment Officer Bae Jae Hyun.

The controversy surrounding Kakao Entertainment’s acquisition of SM Entertainment has prompted increased scrutiny, with the parent company currently conducting an audit of SM Entertainment’s financial statements and executives.

The audit was initiated following demands from SM Entertainment’s Board Audit Committee. In addition, Kakao has also sought documentation regarding investments made by SM Entertainment, particularly those executed without prior consultation with the parent company.

Despite the ongoing audit and heightened scrutiny, Kakao Entertainment has consistently and firmly denied any plans for the sale of SM Entertainment. The official statement also emphasizes that no decision has been made regarding the possible dismissal of SM Entertainment’s management team, awaiting the release of audit results.

Is SM Entertainment Losing Traction as an Entertainment Powerhouse?

The rumors surrounding the sale of SM Entertainment have also created significant speculation within the industry and among fans. The denial also aims to provide clarity and dispel unfounded claims about the potential change in ownership of one of the most prominent entertainment companies in South Korea.

As the audit progresses and more information becomes available, both Kakao Entertainment and SM Entertainment will likely face further scrutiny. The outcome of the audit may impact the future trajectory of both companies and influence decisions related to management and financial dealings. The K-pop industry and fans worldwide will also be keenly watching developments to understand the implications for SM Entertainment’s future under the Kakao Entertainment umbrella.

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