Kakao Corp.’s founder goes on trial Wednesday to face allegations of rigging costs in the course of the takeover battle for Ok-pop powerhouse SM Leisure Co., a watershed second for South Korea’s web and media industries.
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 all South Korea’s highest-profile entrepreneurs, as soon as hailed for serving to remodel an economic system dominated by dynastic family-run conglomerates (or chaebol). Kakao at present supplies a lot of the nation’s 50 million folks 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, recognized in Korea as Kim Beom-su, based the corporate that will turn out to be Kakao in 2006. 4 years later, he began the massively profitable KakaoTalk messaging app, which might go on to turn out to be the guts of the nation’s fifteenth largest conglomerate by belongings.
At one level, Kim — who as a boy shared a room with seven relations — briefly surpassed Samsung Electronics Co. Govt Chairman Jay Y. Lee to turn out to be 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 companies and shipbuilders that management Korea’s enterprise panorama. Kim inspired colleagues to name him Brian and handle 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 Court docket granted prosecutors’ request for a detention warrant. They cited substantial proof of Kim’s involvement in manipulating SM’s inventory value, issues about proof destruction and flight danger.
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 gained ($179 million) value 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 gained 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 document highs. Hybe in the end 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 court docket that Kim and his lieutenants interfered within the M&A bidding course of once 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, doubtlessly for much longer relying on the appeals course of.
A conviction might have implications each for Kakao and the broader economic system. Kim faces jail time, which might sluggish the corporate’s funding in synthetic intelligence and hamper abroad growth and itemizing plans. Kakao at one level thought-about itemizing Kakao Mobility Corp., the nation’s dominant taxi-hailing service.
Kakao might be compelled to relinquish a part of its 27% stake in KakaoBank Corp., the nation’s main web financial institution. Below Korean regulation, people and entities convicted of economic crimes are restricted from proudly owning greater than 10% of a monetary establishment.
Extra broadly, it might doubtlessly exert a chilling impact on fast-growth companies basically, given criticism that Kakao expanded so quickly it started to squeeze smaller rivals.
5. Why achieve this 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 gained collapsed and hundreds of small companies went below, highlighted for a lot of the comfy 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 menace to democracy and financial equality, mentioned Kim Sung-soo, a professor of political science at Hanyang College in Seoul. They’ve led to public assist for persecuting high-profile executives reminiscent of Samsung’s Lee.
On the identical time, others criticize the comparatively lenient sentences that come up. Lee was pardoned and launched early.
