[비즈한국] The appellate trial for Kakao founder Kim Beom-su, head of the Future Initiative Center, regarding the ‘SM Entertainment stock manipulation’ case, has concluded its arguments with the final hearing. While the prosecution requested the same 15-year prison sentence as in the first trial and pushed for a guilty verdict, the failure to re-examine a key witness has fueled a debate over whether the allegations have been sufficiently proven to overturn the initial acquittal. The sentencing outcome, expected this November, is likely to serve as a key variable in determining how the founder’s role and judicial risks are resolved during Kakao’s ongoing corporate governance restructuring.
The 4-1 Criminal Division of the Seoul High Court held the final appellate hearing on the 23rd for Center Head Kim and others, who are charged with violating the Capital Markets Act. As in the first trial, the prosecution requested a 15-year prison sentence, a 500 million KRW fine, and approximately 127.2 billion KRW in forfeiture for Kim. Kim’s defense team requested that the appeal be dismissed and the original acquittal be maintained.
“Normal Stake Acquisition” vs. “Stock Manipulation”: Debate Over Large-Scale Market Purchases
The core of the appellate trial lies in how to interpret Kakao’s large-scale market purchase of SM shares on February 28, 2023. At the time, HYBE was conducting a tender offer for SM shares at 120,000 KRW per share, and Kakao engaged in mass buying on the final day of that tender offer. The prosecution viewed this as stock manipulation to thwart the tender offer and prop up SM’s stock price, whereas Kim’s side argued it was a legitimate purchase for the purpose of investment and securing a stake.
The prosecution cited the fact that Kakao needed to block HYBE’s tender offer, noting that when SM’s stock price fell below 120,000 KRW, Bae Jae-hyun, former Chief Investment Officer of Kakao, instructed Kang Ho-joong, former Head of the Investment Strategy Office, to “make it reach 123,000 KRW quickly,” followed by large-scale buy orders. They viewed this not as simple stake acquisition, but as an intentional effort to keep the stock price at a specific level.
Kim’s defense countered that even if there was a management decision to thwart the tender offer, it could not be concluded that the goal was to artificially fix or stabilize the stock price. They argued that Kakao’s orders were different from ‘layering’—where false orders are placed and canceled without actual intent to execute—and that as the stock price rose, they canceled unexecuted orders and placed new ones at higher prices to secure the necessary volume. They emphasized that many of the high-priced buy orders were intended for actual execution and that the order intervals and patterns lacked the typical characteristics of price manipulation.
The first trial ruled that it was difficult to conclude there was stock manipulation based solely on the result that SM’s stock price rose due to large-scale market purchases. It found that the timing and method of the orders were not typical of manipulation and that the intent to fix the price above normal market levels was not sufficiently proven. It also ruled that the alleged prior collusion between Kakao and One Asia Partners could not be substantiated.
Consequently, in the appellate trial, the central issue is whether the ‘intent to block HYBE’s tender offer’ actually translated into an ‘intent to artificially maintain or fix SM’s stock price,’ and whether, considering actual ordering patterns, the intent and execution of stock manipulation can be considered proven to a level that would overturn the first trial’s acquittal.
Key Witness Testimony Canceled… Kim Beom-su’s Involvement and Kakao’s Governance Variables
The testimony of Lee Jun-ho, former Head of Investment Strategy at Kakao Entertainment, did not take place during the appellate trial. Lee is the person who stated that One Asia’s purchase of SM shares was at the request of Kakao. The first trial did not recognize the credibility of his testimony, citing pressure during a separate investigation and the fact that he received a non-prosecution decision after filing for leniency. In the appellate trial, the prosecution requested a re-examination of the first trial’s judgment, arguing that Lee’s statement was specific, consistent, and consistent with objective evidence.
However, after the court canceled the witness summons for Lee—who failed to appear at the third hearing on August 26, citing a business trip to Japan—the opportunity to reassess the credibility of his statement vanished. The appellate court is now left to judge the validity of the first trial’s ruling based on records, including existing testimonies, internal messages, and actual order patterns.
Whether Center Head Kim was personally involved is another separate point of contention. The prosecution claims that based on conversations such as former CIO Bae’s request on February 24 to convene an investment table—where he mentioned it as a “watershed for the SM acquisition”—Kim was briefed on the investment strategy and involved in the decision-making. Conversely, the defense team argued that one cannot infer the content of investment table discussions based solely on reviews or conversations among Investment Strategy Office staff, and that Lee’s statement that Bae could not have decided without Kim’s approval was merely speculation.
In his final statement, Kim said, “I clearly opposed conducting a public stake war with HYBE by buying additional SM shares during the tender offer period,” adding, “They have found no specific evidence or circumstances as to when, where, or to whom I ordered stock manipulation, or in what way I colluded with One Asia.”
Attention is focused on how the court will judge the link formed between Kakao’s management decisions regarding the SM acquisition and the actual trading behavior, and whether this can be connected to Kim’s personal intent or instructions.
The sentencing result is a variable that could affect not only Kim’s personal criminal liability but also the restructuring of Kakao’s corporate governance.
In August, Kakao’s board of directors resolved to split the company into Kakao AI and Kakao X. Kakao AI will focus on AI, advertising, and commerce centered on KakaoTalk, while Kakao X will manage tech-fin firms like Kakao Bank and Kakao Pay, content businesses like Kakao Entertainment and SM Entertainment, and Kakao Mobility. The split is set to be completed on January 1 next year following an extraordinary shareholders' meeting on December 17, with Kakao AI seeking relisting on January 27 and Kakao X seeking a change in listing.
Since the sentencing, scheduled for November 20, comes about four weeks before the extraordinary shareholders' meeting, shareholders voting on the split proposal will make their decision knowing the sentencing outcome. Kakao’s plan is to increase decision-making speed by separating business and investment through this corporate split. Existing shareholders will be allocated shares in both companies according to the split ratio.
For this reason, interest is focused on this trial in terms of what conclusion the founder’s judicial risks will reach at a time when Kakao is ramping up its new growth structure. If the acquittal is upheld, Kakao can breathe a sigh of relief regarding the judicial risks that began with the SM acquisition, though if the prosecution appeals, the judgment will go to the Supreme Court. Conversely, if the verdict is overturned to guilty, the impact on Kim’s role, Kakao’s governance structure, and its affiliate management system will all need to be re-examined.
The issue of Kakao Bank’s major shareholder eligibility may also become a subject for separate review, depending on the ruling and legal requirements. Under the joint liability provision, which punishes both the perpetrator and the legal entity, the prosecution requested a 500 million KRW fine each for the Kakao and Kakao Entertainment corporate entities. However, the specific impact will depend on subsequent procedures, including the scope of the guilty verdict and the finality of the sentence, rather than just the sentencing result itself.