[비즈한국] Details from the indictment submitted to the court by the Seoul Southern District Prosecutors' Office Financial Investigation Division 2 (Chief Prosecutor Jang Dae-gyu) on the 8th, when they arrested and indicted Kakao035720 Management Reform Committee Chairman Kim Beom-su on charges of violating the Capital Markets Act, are beginning to emerge one by one. It has been an open secret that the prosecution had "overflowing evidence against Chairman Kim Beom-su," and many are now saying it is clear how much testimony the prosecution successfully extracted from key executives.
Prosecution points to Kim Beom-su for 'Intervention, Direction, and Approval'
The prosecution concluded that Chairman Kim Beom-su actively intervened in, directed, and approved stock price manipulation to acquire SM Entertainment. As evidence to support this, they presented testimonies from executives who attended key meetings.
The indictment states that Bae Jae-hyun, former Chief Investment Officer of Kakao (who has been arrested and indicted), proposed a plan to the meeting to invest 590.7 billion won to acquire a 26.5% stake in SM and complete the business combination approval by around August last year. Although former CFO Kim Ki-hong and others opposed it, Chairman Kim Beom-su approved it, stating, "From Kakao Entertainment's perspective, acquiring management rights of SM is a great opportunity." The prosecution’s judgment is that former CEO Bae reported a plan to acquire SM by teaming up with management that had a poor relationship with SM founder Lee Soo-man, and that Chairman Kim approved it.
The prosecution also specified in the indictment that Chairman Kim Beom-su gave final approval for the use of Kakao funds to hoard SM stock via the private equity firm One Asia Partners—in a way that kept Kakao from being directly linked—to raise the stock price to 130,100 won per share, and for further stock hoarding when the price fell below the 120,000 won tender offer price set by their acquisition rival, HYBE352820.
Was 'Leniency' used to extract testimony?
The prosecution specified the concrete dates, locations, and contents of conversations in the indictment, which observers say was made possible by detailed testimonies obtained from executives who participated in the meetings, including the previously arrested former CEO Bae Jae-hyun.
Notably, Lee Jun-ho, the former Head of Investment Strategy at Kakao Entertainment who handled the practical aspects of the stock price boosting, received a suspended indictment. This has led to talk of "plea bargaining" (receiving benefits regarding indictment or sentencing in exchange for cooperation with the prosecution). Since January, the prosecution has been operating a "Leniency Program for Voluntary Reporters," and it appears they utilized this to elicit testimonies from Kakao executives.
According to the indictment, when SM's stock price plummeted below HYBE's tender offer price of 120,000 won on February 27 of last year, former Department Head Lee Jun-ho received instructions from former CEO Bae: "The stock price is falling, so contact (One Asia Partners) and tell them to buy more SM stock quickly. We must maintain the price above 120,000 won," which he then relayed to the One Asia side.
Following this, former Department Head Lee did not hesitate to give illegal instructions to securities firm employees, such as, "Buy it while supporting the price so it isn't detected as market manipulation. The closing price is most important, so pour in all remaining money at the end." The stock was traded at a price higher than HYBE's tender offer, and SM was eventually acquired by Kakao instead of HYBE.
A lawyer familiar with the case hinted, "The testimonies of the executives were crucial for the prosecution to fully grasp Kakao's decision-making process. If you categorize the executives the prosecution arrested, indicted without arrest, and did not indict, you can clearly see the correlation between their level of involvement and their cooperation with the prosecution."
Will Kakao's haphazard management style be further exposed?
The trial for Chairman Kim Beom-su is scheduled to begin on the 11th of next month, and legal circles point out that "Kakao's haphazard management style" may be brought to light. A business world official noted, "In the process of Kakao's rapid growth, their dominance over subsidiaries and internal organizational management were, to put it nicely, free, and to put it harshly, disorganized. Ultimately, isn't it the lack of internal control or oversight mechanisms that led to the stock manipulation?"
As the prosecution's investigation is ongoing, the possibility of additional indictments for Chairman Kim Beom-su cannot be ruled out. The Seoul Southern District Prosecutors' Office is still investigating allegations regarding Kakao Entertainment's high-priced acquisition of a drama production company, Kakao Mobility's "call-tucking" practices, and embezzlement and breach of trust by executives of Klaytn, a blockchain platform affiliate of Chairman Kim and Kakao.
The aforementioned lawyer cautiously predicted, "Among the corporate investigations launched by the prosecution under the Yoon Suk-yeol administration, the Kakao case has been conducted with the highest intensity. Not only is the prosecution's will to investigate Kakao strong, but the government, including the Financial Supervisory Service, has shown significant interest, so it is possible that Chairman Kim will face further responsibility for some of the remaining allegations."