Kakao raided over SM Entertainment stock manipulation allegations
South Korean tech giant Kakao Corp. and its affiliate, Kakao Entertainment, were raided by the Financial Services Commission (FSC) on April 7.
South Korean authorities sent a team of 40 investigators from the FSC to the companies’ premises in Pangyo, Gyeonggi province, to search for evidence related to suspected stock price manipulation during their takeover of SM Entertainment.
In February, Hybe submitted a petition to the Financial Supervisory Service (FSS) alleging an “abnormal” purchase of SM Entertainment’s shares took place through IBK Investment Securities’ Pangyo branch during a critical period when the stock price of SM Entertainment had surged to 130,000 won (approximately $98.40), which led to the investigation.
Hybe claimed that this purchase violated the law and was made to manipulate the market price, which interfered with Hybe’s tender offer to buy SM shares at 120,000 won (approximately $90.83) per share.
However, the deal could not go through as SM Entertainment’s stock price soared. As a result, Kakao and Kakao Entertainment emerged as the largest shareholders of SM, with a 20.78% and 19.14% stake in the company, respectively. The identity of the purchaser of the shares was not disclosed. Hybe requested that the FSS investigate the purchase of 683,398 shares of SM Entertainment, which amounted to a 2.9% stake in the company.
Hybe accused the transaction of violating Article 176 of the Financial Investment Services and Capital Markets Act, which prohibits efforts to “attract anyone to trade listed securities or exchange-traded derivatives.”
According to Hybe, the transaction may have violated the act and disturbed the market order, requiring the FSS’s investigation and follow-up measures to protect innocent investors.
Furthermore, the companies might have contravened regulations that mandate shareholders to make public disclosures upon acquiring over 5% of a corporation’s outstanding shares.
Kakao Corp. and Kakao Entertainment have not yet responded to the allegations.
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