Former Kakao Entertainment CEO Kim Seong-su, who was brought to trial on charges of causing more than 30 billion won in losses to the company by acquiring the drama production company "Baram Pictures" at an inflated price, argued at the first hearing of his appeal that it was a normal transaction. Prosecutors said, "At the time of the acquisition, Baram Pictures was a paper company with no substance."
The Seoul High Court Criminal Division 3 (presiding judge Lee Seung-han) held the first court hearing of the appeals trial on the 23rd for Kim, the former CEO, and one other person, who are charged with violating the Act on the Aggravated Punishment of Specific Economic Crimes (breach of trust), accepting benefits in breach of trust, and other offenses. Earlier, on Sep. 9, the first trial acquitted Kim, while recognizing former Kakao Entertainment head of investment strategy Lee Jun-ho as guilty of embezzlement and sentencing him to two years in prison, suspended for three years.
The issue is whether acquiring Baram Pictures was a legitimate management decision. Baram Pictures was founded in Feb. 2017 and was acquired by Kakao Entertainment in Jul. 2020. Until then, the only released work produced by Baram Pictures was the film "Forgotten." After the Kakao Entertainment acquisition, the Netflix drama "Kingdom: Ashin of the North" and others were released. The drama "Captivating the King," which gained popularity this year, was also produced by Baram Pictures.
Prosecutors said, "At the time, the former head of the institutional sector held 80% equity in Baram Pictures under the name of a spouse," adding, "It should be seen as an acquisition for the former head's personal gain." They also said, "Baram Pictures did not begin substantive operations until around Nov. 2019 after the acquisition, making it hard to view the acquisition as driven by management needs."
They continued, "Many employees of the victim company testified that Baram Pictures was a paper company with no substance and that there was no feasibility for stock valuation or business agreements," adding, "The loss in this case is well over 6 billion won."
Kim's side argued that acquiring Baram Pictures was planned at the headquarters (Kakao) level even before Kakao Entertainment was established, saying it was "pursued out of management necessity." They countered that "Baram Pictures lived up to expectations and grew into a company that generates Kakao Entertainment's top sales."
Regarding the prosecutors' "paper company" claim, they said, "The prosecutor is using external trappings such as offices and staff as the criterion for judging management necessity, an argument that fails to consider the characteristics and practicalities of a drama production company," adding, "Internal and external valuation results for Baram Pictures put its value at well over 40 billion won."
Prosecutors said the first trial found Kim not guilty because there were no materials to verify Baram Pictures' objective corporate value, and they applied for an appraisal to determine the amount of loss for the breach of trust charge. The court, however, rejected the request, saying, "Wasn't there enough time in the first trial regarding the amount of loss?" Kim's side said, "We pointed this out several times in the first trial and the court agreed, but prosecutors insisted Baram Pictures' value was zero and said an appraisal wasn't needed."
Prosecutors believe Kakao Entertainment acquired Baram Pictures, a drama production company effectively owned by the former head of the institutional sector, at an inflated price, allowing the former head to gain about 31.9 billion won, and that, in return, the former CEO Kim received 1,256,460,000 won from the former head.
The former head of the institutional sector is also charged with using 1.05 billion won for personal purposes, including real estate purchases and loan repayments, out of more than 6 billion won that Baram Pictures received from another content production company as drama planning and development costs.