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Kakao Exec Arrested for Stock Manipulation in K-Pop Takeover

(Bloomberg) -- South Korean authorities arrested a senior Kakao Corp. executive for alleged stock price manipulation connected to a high-profile bidding war over K-pop agency SM Entertainment Co. earlier this year.

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Kakao Chief Investment Officer Bae Jae-hyun was arrested early Thursday, according to the Seoul Southern District Court which issued the warrant.

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Internet giant Kakao won a controlling stake in SM after an intense bidding battle with Hybe Co., the label behind boyband sensation BTS. Financial regulators accused the executive, along with two others working at Kakao and Kakao Entertainment Corp., of buying 240 billion won ($178 million) in shares of SM in an attempt to disrupt Hybe’s offer. The court has not issued warrants for others, and it was unclear whether there could be more arrests.

Both Kakao and Hybe had seen ownership of SM as a way to reach a broader audience and to drive Korean entertainment acts into the mainstream. The bidding war helped SM’s shares to surge to record highs and Hybe backed down from its bid in March.

On Thursday, a lawyer representing the Kakao executives reiterated that the purchase of SM shares was a legitimate market transaction, and said the arrest warrant was regrettable considering there was no damage to minority shareholders of Hybe or SM. The CIO will defend against the allegations in court, he added. Kakao officials declined to comment.

Shares in Kakao fell around 3% to their lowest since May 6, 2020. Shares in SM were down about 4%, but still up 51% so far this year. Kakao Games Corp., the video game publishing unit of Kakao, slid 3.5% to a record low.

Kakao and its entertainment unit have been eager to secure intellectual property of K-pop talent for overseas expansion. The company has also been mulling a listing of its entertainment unit overseas or at home. SM’s executives have said they expect Kakao’s platform business and technology to help them grow globally.

Read More: K-Pop Pioneer Debuts Its First New Supergroup in Three Years

--With assistance from Youkyung Lee.

(Adds lawyer’s comment in fifth paragraph)

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