The prosecution search and seize Kakao Entertainment for “suspicious acquisition of SM’s shares”

The prosecution and financial authorities launched a search and seizure of Kakao Entertainment in connection with allegations of market price adjustment that arose during the acquisition of SM Entertainment.

According to legal circles on April 6th, the Seoul Southern District Prosecutors’ Office’s Financial Investigation Division 2 raided Kakao Entertainment’s headquarters in Pangyo-dong, Bundang-gu, Seongnam-si and its office in Jongno-gu, Seoul on charges of stock price manipulation and violation of the obligation to report mass possession.

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Earlier, the Financial Supervisory Service transferred the market price manipulation suspicion case, which arose in the process of Kakao Entertainment taking over SM Entertainment, to the prosecution as a fast-track (emergency measure). HYBE, which competed with Kakao Entertainment for the management rights of SM, submitted a petition to the Financial Supervisory Service on Feb 28th asking for an investigation, saying, “There is a situation in which a certain force raises SM’s stock prices to hinder HYBE’s tender offer.” The Financial Supervisory Service reportedly found circumstantial evidence that executives and employees in Kakao were involved through analysis of the identity and transaction history of other corporations that acquired SM’s shares.

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HYBE announced the suspension of the acquisition of SM Entertainment’s management rights as Kakao Entertainment announced that it would buy SM Entertainment’s shares at 150,000 won per share. Due to the recent tender offer, Kakao and Kakao Entertainment, which respectively owned 3.28% and 1.63% of SM Entertainment’s shares, now hold 20.78% and 19.13%. With a total of 39.91%, the takeover battle between the two sides ended and Kakao becomes SM Entertainment’s largest shareholder.

Based on the analysis obtained through the search and seizure, the prosecution plans to examine the situation of stock price manipulation by Kakao Entertainment’s executives in detail.

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