Bae Jae-hyun, of internet giant Kakao, is accused of forcing an artificial increase in the price of a talent agency whose purchase was in dispute with its rival Hybe, the record label of the BTS phenomenon.
The South Korean authorities have arrested a senior executive of internet giant Kakao for allegedly manipulating share prices during a bidding “war” to buy K-pop agency SM Entertainment earlier this year.
Bae Jae-hyun, the company’s chief investment officer, was arrested on Thursday, according to the Seoul Southern District Court, which issued the arrest warrant.
Kakao took control of SM after an intense bidding war with Hybe, the record label behind K-pop sensation BTS. The battle drove SM’s share price to a record high, and Hybe withdrew its offer in March after Kakao made an even higher bid.
Concept photos of the BTS members for the anthology album ‘Proof’
SM, along with JYP and YG Entertainment, dominated the K-pop industry before the emergence of boy band BTS, which quickly rose to global stardom over the past decade, helping to make Hybe the leading player in the sector.
By buying SM, Kakao is seeking a larger share of the market currently dominated by Hybe.
Financial regulators accused the executive, along with two others who work at Kakao and Kakao Entertainment, of buying 240 billion won (US$178 million) in SM shares just to artificially inflate the price in an attempt to undermine Hybe’s bid. The court did not issue warrants for the others involved.
The three are also accused of failing to report their large shareholdings in the companies to regulators.
Both Kakao and Hybe saw ownership of SM as a way to reach a wider audience and bring Korean entertainment artists to the international stage. The bidding war helped SM shares reach all-time highs, and Hybe dropped its offer in March.
On Thursday, a lawyer representing Kakao’s executives reiterated that the purchase of SM’s shares was a legitimate market transaction and said that the arrest warrant was regrettable, considering that there was no harm to Hybe’s or SM’s minority shareholders.
Kakao representatives declined to comment on the arrest of their executive.
Kakao shares fell by around 3% to their lowest since May 6, 2020, while SM shares fell by around 4%. Kakao Games, Kakao’s video games unit, fell 3.5%, hitting a record low.
Kakao and its entertainment unit are looking to K-pop talent to ensure their global expansion.
But while K-pop is gaining ever larger audiences in the West, South Korea’s multi-billion dollar entertainment industry is facing accusations of sexual misconduct, tax evasion and unethical finances.
Bae’s arrest comes after South Korean regulators promised to crack down on insider trading and stock price manipulation to “clean up” the local market. They plan to impose heavy fines and speed up investigations into unusual trading.