As Kakao founder Kim Beom-su, indicted on charges of manipulating the stock price during the acquisition of SM Entertainment (SM), was acquitted in the first trial, attention is shifting to HYBE. It could broaden the room for legal interpretation for HYBE Chair Bang Si-hyuk, who is under investigation for violating the Financial Investment Services and Capital Markets Act.
Kim and Bang once faced off over the SM acquisition, but now stand at the center of a case symbolizing a "capital market risk" in the entertainment industry.
According to a compilation of reporting by ChosunBiz on the 23rd, entertainment companies have begun reviewing the key points of the ruling in Kim's case. That is because it could newly present standards for judging stock trading methods and market intervention in the entertainment sector during investment.
The first-instance court acquitted Kim, who was indicted on the charge that "Kakao artificially boosted the stock price to block HYBE's tender offer for SM." Prosecutors argued that prices were rigged to keep SM's stock fixed above HYBE's tender offer price of 120,000 won.
However, the court found that "even after reviewing the buy ratio, intervals, and order volumes, there is not enough basis to deem the trading pattern as orders with the nature of price rigging."
Some say the first-trial decision was unexpected. An industry source said, "HYBE initially launched a tender offer at 120,000 won per share, and after Kakao set its tender offer at 150,000 won per share, there were repeated instances where whenever SM's stock looked set to fall, it would jump (rise). We discussed how odd that was."
The person added, "There was talk that someone was deliberately intervening to defend the stock price, and I understand that these circumstances led to the investigation and indictment of founder Kim Beom-su."
The ruling also eases the burden on Kakao Entertainment. Under the principle of vicarious corporate liability that "a company is also responsible for crimes committed within the company," Kakao Entertainment was also brought to trial on charges of artificially manipulating the stock price and obstructing the tender offer.
Now industry attention is turning to HYBE. Chair Bang is suspected of telling HYBE investors in 2019 that there were no plans to list the company and then having equity sold to a specific private equity fund (violation of the Financial Investment Services and Capital Markets Act). When the listing process actually moved forward, the private equity fund sold the shares, and Bang is said to have received part of the profit, 190 billion won, under a prearranged contract.
Authorities view this as a "fraudulent unfair transaction" under the Financial Investment Services and Capital Markets Act and are investigating. Police conducted two rounds of questioning and are reviewing the legal theory.
The crux of Bang's case is whether the listing timing was misrepresented and whether realizing gains under the contract can be seen as a legal problem. It aligns with Kim's case in that the issues similarly involve undermining confidence in the capital market. In the industry, the view is that, because there is no clear victim and listing plans can change depending on management circumstances, these factors will likely become variables in indictment or guilt-or-innocence determinations.
The cases involving Kim and Bang are expected to serve as a touchstone for how far market autonomy can be recognized within the entertainment industry's unique management structure. Although the two cases are not directly related, they are likely to have a considerable impact on future investment and disclosure practices in the entertainment sector.
An industry official said, "Entertainment has established itself as an industry and is actively conducting investment and equity transactions in the global capital market," adding, "These two cases draw the line between business judgment and illegal conduct."
The person added, "It is also true that, as the industry has grown rapidly, new types of transactions and controversies that were rare in the past have emerged," and said, "With this ruling as a turning point, there could be more room for flexible legal interpretation in management and investment decision-making in the entertainment industry."