- Tech giant Kakao Corp faces a new legal challenge as the South Korean court reviews an arrest warrant for its billionaire founder, Brian Kim.
- This scrutiny may complicate Kakao’s venture into AI services and the fundraising plans of its subsidiaries, including potential IPOs.
OUR TAKE
A South Korean court is reviewing a request for an arrest warrant for Kim, which stems from allegations that he manipulated stock prices in a 2023 takeover. Although Kim has not yet been formally charged, he has categorically denied all the allegations and has stated that he never ordered or tolerated any illegal activities. This incident not only has implications for Kim personally, but could also have far-reaching implications for the control of the Kakao Group and its subsidiaries, including online bank KakaoBank Corp. In addition, ongoing regulatory and social scrutiny may pose challenges to Kakao Group’s investments in artificial intelligence and the fundraising plans of its subsidiaries.
–Elodie Qian, BTW reporter
What happened
Tech giant Kakao Corp faces a new legal challenge as the South Korean court reviews an arrest warrant for its billionaire founder, Kim Beom-soo.
Kim, the founder and largest shareholder of Kakao Corp, holds a significant 24% stake through his own and related entities.
Founded in 2004, Kakao has a wide range of businesses, including messaging applications, financial services, and entertainment media. Its core product, KakaoTalk, is a popular messaging application with approximately 43 million monthly active users, representing approximately 84 per cent of the Korean population.
Accused of stock manipulation during an acquisition in 2023, Kim stands at the centre of this financial controversy. Not yet formally charged, Kim has firmly denied the accusations, saying he had never ordered or tolerated illegal activities, as stated in a Kakao release.
It is the latest legal twist for Kakao after the company and an executive went on trial last year for alleged wrongdoing during the same acquisition.
Prosecutors said they has obtained sufficient human and physical in the case of Kim Beom-soo’s alleged stock market manipulation.
Prosecutors suggests Kim was involved in manipulation of the stock price of SM Entertainment in February last year to hinder a competitor, Hybe, from acquiring the K-Pop agency. In addition, Kim Beom-soo is also suspected of failing to report his large shareholding to financial regulators in the process.
The court’s decision, expected to be revealed late Monday or early Tuesday, will determine if the warrant is suitable, without addressing the allegations themselves.
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Why it’s important
Analysts said that a case against Kim could threaten Kakao Group’s control over its online banking division, KakaoBank Corp, due to rules that forbid individuals convicted of financial crimes from owning more than 10% of a bank.
This scrutiny may also complicate Kakao’s venture into AI services and the fundraising plans of its subsidiaries, including potential IPOs.
Kim leads a corporate alignment council, which directs the interests of Kakao Group’s 128 affiliates and decides the focus of their business operations.
The introduction of new AI services is on Kakao’s agenda for this year, aiming to stay ahead in the competitive tech industry.
In May of this year, Kakao was fined 15.1 billion won ($10.88 million) by Korea’s Personal Information Protection Commission (PIPC), citing the company’s negligence in managing and protecting user information that led to the leakage of more than 65,000 pieces of personal information.
The PIPC pointed out that the company had long been aware of the risk of vulnerabilities in KakaoTalk’s application programming interface, but failed to effectively check the protection of personal information or take protective measures.
According to the report, this is the highest fine currently imposed by the Korean government on a domestic Internet company.
In response to the findings of the investigation, Kakao objected and claimed that the temporary accounts do not contain any type of personal information and are not subject to the relevant laws regarding the mandatory encryption of user account information.
Kakao said that upon learning of the incident, they have immediately reported it to the police and the Ministry of Science and Technology, and are closely cooperating with the investigations of the relevant authorities.
