Kakao founder Chairperson Kim Beom-su of the Management Reform Committee was acquitted on the 21st in the first trial on charges of manipulating SM Entertainment's stock price. Prosecutors had earlier sought a 15-year prison term for Kim.
The court found that "the testimony of a person surnamed Lee, a former executive at Kakao Entertainment and the prosecution's key evidence, is hard to trust." It added, "(The prosecution) pressured suspects or related parties through a separate investigation to extract statements, leading to an improper result that distorted the truth."
In legal circles, some said it was "a case in which the prosecution conducted an overreaching investigation and sought an excessive sentence, only for the first trial to return a not-guilty verdict."
◇ Court: "The prosecution's key evidence is hard to trust" "He recanted and tried to avoid indictment"
The charge prosecutors brought against Chairperson Kim was that Kakao, competing with HYBE for control of SM Entertainment, bought large amounts of SM Entertainment shares to artificially raise the price to thwart HYBE's tender offer.
HYBE conducted a tender offer for SM Entertainment shares at 120,000 won per share from Feb. 10 to 28, 2023. But during the tender offer period, Kakao, together with Kakao Entertainment, bought shares on the open market at 150,000 won per share.
Prosecutors viewed this as market manipulation under the Capital Markets Act and indicted him last August, saying Chairperson Kim ordered the conduct. The key evidence was the testimony of a former Kakao Entertainment executive, a person surnamed Lee.
Lee told prosecutors that on Feb. 20, 2023, during the tender offer period, this was what Lee heard in a call with former Kakao chief investment officer Bae. In that call, Bae allegedly said, "Brian (Chairperson Kim) confirmed it." The implication was that Chairperson Kim approved injecting large funds into the tender offer period.
On this point, the court acquitted Chairperson Kim, saying, "Lee's testimony does not match objective facts and is hard to trust as is," and ruled that "Lee's testimony is not qualified to be used as evidence." The court detailed the basis for this finding.
First, it said, "While being questioned six times by the Financial Supervisory Service (FSS) and prosecutors, Lee initially denied all charges in this case, but after a search and seizure in a separate investigation, Lee recanted the previous statements during a Nov. 29, 2023, prosecutorial questioning and testified in a way consistent with the indictment."
It continued, "After recanting, Lee applied for leniency (not indicting a person who cooperates with the investigation) and was not indicted in this case," adding, "Lee appears to have had ample motive to recant prior statements about Kakao's purchases to avoid becoming the subject of investigation and trial."
Lee has also been investigated by prosecutors and is currently on trial on suspicion that Kakao Entertainment acquired the drama production company Baram Pictures at an inflated price.
◇ Court: "HYBE's tender offer was likely to fail at the time… There was no reason to block it"
The court ruled that Kakao's large-scale accumulation of SM Entertainment shares during HYBE's open-market purchase period cannot be seen as market manipulation under the Capital Markets Act.
The court said, "During the tender offer period, SM Entertainment's stock price was continually rising, so HYBE's tender offer appeared likely to fail," adding, "It is reasonable to conclude that Chairperson Kim and others would not have spent as much as 120 billion won to try to block the tender offer."
The court also said, "As a means of defense or competition against a tender offer, open-market purchases are allowed, and depending on the timing, scale, and method, they inevitably affect the market price." It added, "You cannot deem it market manipulation merely because the market price was affected by open-market purchases."