Kakao Founder Cleared Of SM Entertainment Stock Manipulation

Following the acquittal of founder Kim Beom-su over a two-year investigation of alleged stock manipulation involving fellow pop-culture titan SM Entertainment, stocks under the Kakao conglomerate jumped across the board on Tuesday, October 21, 2025.

After Kakao Corp’s stock fell to its low for the month on the Korea Composite Stock Price Index (KOSPI) on Friday ahead of the impending court decision, the stock has shot back up, closing at at 62,300 KRW (about $43.57), gaining 3,600.00, (about $2.52) to deliver a 5.95% gain for the day.

Meanwhile, the stock for KakaoPay Corp, the digital wallet and mobile payment service under the company, also rose on KOSPI, hopping to 53,100 Korean won ($37.14), gaining 2,000 KRW ($1.40), for a 3.91% increase.

Meanwhile, the stocks for KakaoBank Corp (the financial institution focused on mobile banking services and finance tech) and Kakao Games Corp (the globally focused gaming publisher) both rose as well, respectively climbing 3.34% and 2.84% on the KOSPI and the Korea Securities Dealers Automated Quotations (KOSDAQ) for the day.

The stock bump is more welcome news for Kakao’s founder Kim Beomsu who was acquitted regarding charges of stock-price manipulation when his ultimately company acquired SM Entertainment in a highly publicized battle with HYBE. The prosecution had demanded the maximum 15-year sentence in prison for Kim in its sentencing guidelines back in August.

Several former Kakao employees alongside Kim were also acquited including Bae Jaehyun (the former head of investments), Kim Sungsoo (former CEO of the Kakao Entertainment subsidiary), and Hong Eun-tak (former Kakao CEO). However, Ji Changbae, the CEO of private equity fund One Asia Partners, was indicted on charges of embezzlement and breach of trust in the case and was sentenced to three years in prison with a four-year probation period.

In February 2023, Kakao signed a contract to acquire new shares and convertible bonds from SM Entertainment which would allow the company to secure approximately nine percent of SM’s shares at 91,000 Korean won (about $63.66) per share at a discounted price. The historic SM label was largely seen as a way for Kakao to become more competitive in the global music scene.

SM Entertainment’s stocks soon began rise in the coming days as Kakao faced obstacles from SM founder Lee Soo Man filed a request to suspend Kakao’s stock acquisition and HYBE made a public offer to purchase shares at 120,000 KRW ($83.96), which was higher than market price. The prosecution argued that Kim manipulated SM’s stock price by fixing the purchase price higher than HYBE’s public offer to ultimately block the competiting acquisition and the executive was indicted in August 2024.

However, the court ruled that the market manipulation charges were not proven and Kakao’s purchases were an effort to gain shares.

“The mere fact that purchase activities affected the market price cannot be deemed market manipulation,” the court stated according to a report from The Chosun Daily. “Even after reviewing Kakao’s purchase ratio, timing, and order volume, there is insufficient evidence to conclude that the orders were manipulative,” adding that the stock’s rise was to be expected even after HYBE’s offer concluded. With SM’s stock peaking close to 150,000 KRW at its highest in March 2023, the stock suffered big drops in 2024 but has since returned to its peak during the 2023 acquisition and remains high today, closing at 119,600 KRW ($83.65) on Tuesday.

The court also judged that the individual Lee Jun-ho, the former head of Kakao Entertainment’s investment strategy division and had testified that Kakao and One Asia Partners colluded to manipulate SM’s stock price, had provided false statements possibly under duress.

“Lee was investigated not only for this case but also for unrelated matters, with multiple bench warrants issued, placing him under extreme psychological pressure,” the court stated. “After a separate seizure and search, he retracted his previous statements and testified in line with the prosecution’s claims…Lee sought to avoid investigation and expected that testifying in line with the prosecution’s claims would lead to the closure of his case. He applied for a leniency program after testifying in accordance with the charges and was not indicted in this case. His motive and reason for providing false testimony are clear.” The Chosun Daily adds that Lee had been under investigation over a breach of trust for “allegedly causing Kakao Entertainment to overpay for the acquisition of drama production company Baram Pictures.”

The prosecution stated it would decide on an appeal after analyzing the verdict.

Looking ahead, Kim Beomsu and Kakao spoke excitedly about the future expected to accelerate internal reforms.

“I sincerely thank the court for carefully reviewing the case over a long period and reaching this conclusion,” Kim said immediately after the ruling. “I hope this becomes an opportunity for Kakao to escape the shadow of accusations of stock price manipulation and market manipulation.”

Kakao also stated that, “The Kakao Group faced numerous difficulties due to the two years and eight months of investigation and trial. It was particularly painful that we struggled to respond swiftly to rapid market changes. We will strive to make up for this and fulfill our social responsibilities.”

Kakao Corp’s stock is up nearly 60% for the year.