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Kakao Corp.\u2019s founder goes on trial Wednesday to face allegations of rigging prices<\/a> during the takeover battle for K-pop powerhouse SM Entertainment Co., a watershed moment for South Korea\u2019s internet and media industries.<\/p>\n Brian Kim \u2014 who\u00a0built<\/a>\u00a0a simple messaging service into a $22 billion empire spanning social media, content and fintech \u2014 is grappling with charges he tried to thwart BTS-agency Hybe Co.\u2019s rival bid by pushing up SM\u2019s price. The billionaire entrepreneur goes on trial in Seoul alongside three former and current Kakao executives, also charged with manipulating the target\u2019s stock<\/a>.\u00a0<\/p>\n It\u2019s a dramatic setback for one of South Korea\u2019s highest-profile entrepreneurs, once hailed for helping transform an economy ruled by dynastic family-run conglomerates (or chaebol). Kakao today provides much of the country\u2019s 50 million people with messaging, banking, gaming and taxi-hailing services.<\/p>\n At the trial\u2019s first, mainly procedural, hearing on Wednesday, the presiding judge stressed he would like to move the case along efficiently. He set the next hearing for Oct. 8.<\/p>\n The 58-year-old tycoon, known in Korea as Kim Beom-su, founded the company that would become Kakao in 2006. Four years later, he started the massively successful KakaoTalk messaging app, which would go on to become the heart of the country\u2019s 15th largest conglomerate by assets.\u00a0<\/p>\n At one point, Kim \u2014 who as a boy shared a room with seven family members \u2014 briefly surpassed Samsung Electronics Co. Executive Chairman Jay Y. Lee to become the country\u2019s richest person. His fortune has since plummeted, from a\u00a0peak<\/a>\u00a0of more than $14 billion to around $3.2 billion as of this week.<\/p>\n The trial marks a low point in Kim\u2019s rags-to-riches story, and a shift in perceptions. Kim and fellow entrepreneurs like Coupang Inc.\u2019s Bom Kim were once hailed as visionaries who prevailed against Silicon Valley titans to carve out their own stakes on the internet \u2014 foils to the steel firms and shipbuilders that control Korea\u2019s business landscape. Kim encouraged colleagues to call him Brian and address each other by their English nicknames, eschewing the titles that are the norm in Korean corporate culture.<\/p>\n But as their power rose, government officials grew concerned about the way internet services were displacing incumbents in fields like banking, retail, entertainment and even mom-and-pop physical stores. Kakao\u2019s proliferation into more than 120 affiliates has also sparked criticism about governance.<\/p>\n Kim has remained in detention since July, when the Seoul Southern District Court granted prosecutors\u2019 request for a detention warrant. They cited substantial evidence of Kim\u2019s involvement in manipulating SM\u2019s stock price, concerns about evidence destruction and flight risk.\u00a0<\/p>\n In the following month, prosecutors\u00a0indicted<\/a>\u00a0the entrepreneur with charges of market violations during the takeover battle, paving the way for September\u2019s trial.\u00a0<\/p>\n Prosecutors accuse Kakao and unit Kakao Entertainment Co. of buying 240 billion won ($179 million) worth of SM shares at inflated prices, to fend off its rival suitor. Hybe, the agency that represents the hit boy band BTS, had purchased a 15% stake from SM founder Lee Soo-man, and proposed a buyout at 120,000 won per share.\u00a0<\/p>\n Both Hybe and Kakao craved ownership of SM as a way to reach a broader audience. Kakao executives are accused of carrying out their alleged maneuver in February 2023, sending SM\u2019s shares to record highs. Hybe ultimately backed down, and Kakao and Kakao Entertainment took control of SM in March.<\/p>\n In October, authorities arrested Kakao\u2019s chief investment officer, Bae Jae-hyun, in connection with the bidding war, plunging the company into crisis. Kim has repeatedly denied any wrongdoing.<\/p>\n Prosecutors are expected to argue in court that Kim and his lieutenants interfered in the M&A bidding process when they allegedly artificially bid up SM\u2019s stock price, and illegally tampered with market levels.<\/p>\n The current trial focuses on Kim\u2019s role, whether he was directly involved or condoned the alleged actions. The case could drag on for months, potentially much longer depending on the appeals process.\u00a0<\/p>\n A conviction could have implications both for Kakao and the broader economy. Kim faces jail time, which would slow the company\u2019s investment in artificial intelligence and hamper overseas expansion and listing plans. Kakao at one point considered listing Kakao Mobility Corp., the nation\u2019s dominant taxi-hailing service.\u00a0<\/p>\n Kakao could be forced to relinquish part of its 27% stake in KakaoBank Corp., the country\u2019s leading internet bank. Under Korean law, individuals and entities convicted of financial crimes are restricted from owning more than 10% of a financial institution.<\/p>\n More broadly, it could potentially exert a chilling effect on fast-growth businesses in general, given criticism that Kakao expanded so rapidly it began to squeeze smaller competitors.<\/p>\n Kim is just the latest in a long tradition of prosecutions for corporate tycoons. The country took steps to enforce laws around white-collar crimes and corruption in response to a public outcry over perceived corporate wrongdoings in the aftermath of the 1998 Asian financial crisis.<\/p>\n The turmoil around that period, when the won collapsed and thousands of small businesses went under, highlighted for many the cozy relationships between family-run chaebol and politicians. Ordinary South Koreans are increasingly questioning the\u00a0consolidation<\/a>\u00a0of wealth among a handful, and the stifling effect that\u2019s had on small businesses and startups.\u00a0<\/p>\n Many citizens now view large companies as a threat to democracy and economic equality, said Kim Sung-soo, a professor of political science at Hanyang University in Seoul. They have led to public support for persecuting high-profile executives such as Samsung\u2019s Lee.<\/p>\n At the same time, others criticize the relatively lenient sentences that arise. Lee was pardoned and released early.\u00a0<\/p>\n<\/div>\n\n1. Who is Brian Kim?<\/h2>\n
2. Why is the Kakao founder on trial?<\/h2>\n
3. What is the evidence on each side?<\/h2>\n
4. What happens if he\u2019s convicted and how would it affect Kakao?<\/h2>\n
5. Why do so many South Korea CEOs get prosecuted?<\/h2>\n