Trial of Kakao founder mixes Okay-pop stock-rigging, pushback on billionaires

Brian Kim — who constructed a easy messaging service right into a $22 billion empire spanning social media, content material and fintech — is grappling with expenses he tried to thwart BTS-agency Hybe Co.’s rival bid by pushing up SM’s value. The billionaire entrepreneur goes on trial in Seoul alongside three former and present Kakao executives, additionally charged with manipulating the goal’s inventory. 

It’s a dramatic setback for one in every of South Korea’s highest-profile entrepreneurs, as soon as hailed for serving to remodel an financial system dominated by dynastic family-run conglomerates (or chaebol). Kakao as we speak gives a lot of the nation’s 50 million individuals with messaging, banking, gaming and taxi-hailing providers.

On the trial’s first, primarily procedural, listening to on Wednesday, the presiding choose harassed he wish to transfer the case alongside effectively. He set the following listening to for Oct. 8.

1. Who’s Brian Kim?

The 58-year-old tycoon, identified in Korea as Kim Beom-su, based the corporate that may change into Kakao in 2006. 4 years later, he began the massively profitable KakaoTalk messaging app, which might go on to change into the center of the nation’s fifteenth largest conglomerate by property. 

At one level, Kim — who as a boy shared a room with seven members of the family — briefly surpassed Samsung Electronics Co. Govt Chairman Jay Y. Lee to change into the nation’s richest individual. His fortune has since plummeted, from a peak of greater than $14 billion to round $3.2 billion as of this week.

The trial marks a low level in Kim’s rags-to-riches story, and a shift in perceptions. Kim and fellow entrepreneurs like Coupang Inc.’s Bom Kim have been as soon as hailed as visionaries who prevailed in opposition to Silicon Valley titans to carve out their very own stakes on the web — foils to the metal corporations and shipbuilders that management Korea’s enterprise panorama. Kim inspired colleagues to name him Brian and tackle one another by their English nicknames, eschewing the titles which are the norm in Korean company tradition.

However as their energy rose, authorities officers grew involved about the best way web providers have been displacing incumbents in fields like banking, retail, leisure and even mom-and-pop bodily shops. Kakao’s proliferation into greater than 120 associates has additionally sparked criticism about governance.

2. Why is the Kakao founder on trial?

Kim has remained in detention since July, when the Seoul Southern District Courtroom granted prosecutors’ request for a detention warrant. They cited substantial proof of Kim’s involvement in manipulating SM’s inventory value, considerations about proof destruction and flight threat. 

Within the following month, prosecutors indicted the entrepreneur with expenses of market violations in the course of the takeover battle, paving the best way for September’s trial. 

3. What’s the proof on all sides?

Prosecutors accuse Kakao and unit Kakao Leisure Co. of shopping for 240 billion received ($179 million) price of SM shares at inflated costs, to fend off its rival suitor. Hybe, the company that represents the hit boy band BTS, had bought a 15% stake from SM founder Lee Soo-man, and proposed a buyout at 120,000 received per share. 

Each Hybe and Kakao craved possession of SM as a approach to attain a broader viewers. Kakao executives are accused of finishing up their alleged maneuver in February 2023, sending SM’s shares to report highs. Hybe finally backed down, and Kakao and Kakao Leisure took management of SM in March.

In October, authorities arrested Kakao’s chief funding officer, Bae Jae-hyun, in reference to the bidding battle, plunging the corporate into disaster. Kim has repeatedly denied any wrongdoing.

Prosecutors are anticipated to argue in courtroom that Kim and his lieutenants interfered within the M&A bidding course of after they allegedly artificially bid up SM’s inventory value, and illegally tampered with market ranges.

4. What occurs if he’s convicted and the way would it not have an effect on Kakao?

The present trial focuses on Kim’s position, whether or not he was immediately concerned or condoned the alleged actions. The case might drag on for months, probably for much longer relying on the appeals course of. 

A conviction might have implications each for Kakao and the broader financial system. Kim faces jail time, which might sluggish the corporate’s funding in synthetic intelligence and hamper abroad enlargement and itemizing plans. Kakao at one level thought-about itemizing Kakao Mobility Corp., the nation’s dominant taxi-hailing service. 

Kakao may very well be pressured to relinquish a part of its 27% stake in KakaoBank Corp., the nation’s main web financial institution. Underneath Korean legislation, people and entities convicted of economic crimes are restricted from proudly owning greater than 10% of a monetary establishment.

Extra broadly, it might probably exert a chilling impact on fast-growth companies generally, given criticism that Kakao expanded so quickly it started to squeeze smaller rivals.

5. Why accomplish that many South Korea CEOs get prosecuted?

Kim is simply the most recent in a protracted custom of prosecutions for company tycoons. The nation took steps to implement legal guidelines round white-collar crimes and corruption in response to a public outcry over perceived company wrongdoings within the aftermath of the 1998 Asian monetary disaster.

The turmoil round that interval, when the received collapsed and 1000’s of small companies went underneath, highlighted for a lot of the comfortable relationships between family-run chaebol and politicians. Unusual South Koreans are more and more questioning the consolidation of wealth amongst a handful, and the stifling impact that’s had on small companies and startups. 

Many voters now view massive firms as a risk to democracy and financial equality, stated Kim Sung-soo, a professor of political science at Hanyang College in Seoul. They’ve led to public assist for persecuting high-profile executives comparable to Samsung’s Lee.

On the identical time, others criticize the comparatively lenient sentences that come up. Lee was pardoned and launched early.