Three years ago, Brian Kim stood at the top of South Korea's internet industry as a well-known entrepreneur, creating a mainstream information platform for 50 million people in South Korea. Now, he has been arrested and is preparing to fight for his freedom and corporate empire in court.
Shortly after 1 a.m. on July 23rd, the founder of Kakao was arrested on suspicion of manipulating prices in the highly publicized SM Entertainment acquisition battle. The acquisition was supposed to solidify Kakao's dominant position in markets such as music, shopping, and transportation services. However, it has incurred a series of regulatory strikes and raised questions about its future prospects as emerging innovative businesses in South Korea challenge aging conglomerates.
At the age of 58, Brian Kim denied any wrongdoing, marking a stunning turnaround after his fortune peaked at $14.4 billion and he became South Korea's richest man. As of July 22nd, his personal fortune had dropped to about $3.6 billion.
His arrest also reflects a change in attitude among South Korean regulators. He and Bom Kim of Coupang were once hailed as visionary entrepreneurs who beat Silicon Valley giants and carved out their own businesses on the internet, which stood in sharp contrast to steelmakers, chip makers, and shipbuilders who still dominate the country's business landscape. However, as these companies have grown stronger, the government has become concerned that internet services could replace existing businesses in areas such as banks, retail, entertainment, and physical stores.
Critics have pointed out that Kakao has spawned an astonishing number of affiliated companies, with more than 120 according to the latest official data, which hold stakes in each other. This strategy is similar to that used by some of South Korea's largest conglomerates, or chaebols, in their early days, a strategy that drew government scrutiny for possible abuse.
"Brian Kim is a representative figure of technological innovation in South Korea," said Park Ju-gon, head of the Seoul-based corporate research firm Leaders Index, "but Kakao's business is too vast, and its many spin-offs have damaged shareholder value, while the core members in Brian Kim's circle hold key positions in each subsidiary and enhance the opacity of the management structure."
Kakao's stock, which listed in Seoul, has fallen about 25% this year and was down 5.4% on July 23. The stock has fallen more than 75% from its 2021 high, shrinking its market value by more than $40 billion.
Brian Kim and a Kakao spokesperson have repeatedly denied the allegations and said they did not engage in any illegal activity in the process of acquiring SM Entertainment. On July 23, Kakao expressed regret over the current situation and pledged to minimize management disruptions under the leadership of CEO Chung Shin-a.
South Korean courts have never shied away from sending industry leaders to jail. Chairmen of well-known companies such as Samsung, Hyundai, and Lotte have been sentenced to prison at different times, and many have been pardoned and returned to their jobs after several years. Lee Jae-yong of Samsung was released in 2021 after years of legal disputes. This not only reflects the influence of chaebols, but also the efforts of successive governments to promote reform.
"Decades ago, as South Korea emerged from the ruins of the Korean War and established its own industry, enterprises enjoyed almost complete immunity in the pursuit of economic growth," said Kim Sung-soo, a political science professor at Seoul's Hanyang University. "As Korea transitions to a vibrant democracy, everything has changed and democracy can scrutinize the most powerful companies for the public good."
However, no internet giants have suffered the same fate as Brian Kim of Kakao before. Although Seoul has been focusing on new economy pioneers such as Coupang and Kakao since 2021, few expected Brian Kim to be suddenly arrested.
Since 2021, the billionaire has been facing a range of investigations, ranging from tax evasion to monopoly allegations. Afterward, Kakao waged a bidding war against Hybe Co., which represents the popular boy band BTS, for SM Entertainment.
Prosecutors allege that Kakao executives tried to buy stock during the competition and pushed the price of SM Entertainment above Hybe's offer of 0.12 million won per share, thwarting the efforts of its competitors. Financial regulators accused Kakao and its subsidiary Kakao Entertainment Corp. executives of buying 240 billion won ($173 million) of SM Entertainment shares at the time to disrupt Hybe's offer. The court decided to detain Brian Kim pending further investigation.
Brian Kim's arrest marks the unsettling side of the most attention-grabbing rags-to-riches story in the industry.
When he was young, Kim Beom-su lived with seven family members in one room. In 2006, he founded the later Kakao company. Four years later, he founded the highly successful mobile information application Kakao Talk, which later became the core of an online empire spanning banking, shopping, gaming and car-hailing and other fields. He once surpassed Lee Jae-yong of Samsung Electronics and became South Korea's richest man.
But he also faced strict scrutiny. Regulatory agencies were worried about Kakao's expanding business scope, so anti-monopoly measures were taken. In early 2022, police investigated reports of Kim Beom-su evading 88.6 billion won in taxes (stemming from the 2014 merger with competitor Daum), causing Kakao and its subsidiaries (such as Kakao Pay, Kakao Games, and KakaoBank) to lose over 25 billion dollars in market cap. The company reportedly called the accusations "baseless," and the tax department later dismissed them.
Last year, as pressure mounted, Kim Beom-su tried to change his image by shaving off his beard for the first time in 17 years. He vowed to thoroughly reform his company and said he would not hesitate to change its name if necessary.
According to the Fair Trade Commission and company data, Kim Beom-su's conglomerates are still the 15th largest in South Korea by assets and have 124 affiliated companies. It is not yet clear what steps he will take to alleviate regulatory pressure. But his arrest has raised doubts about his plan to separately list his entertainment assets. The company is also trying to offer artificial intelligence services after its competitor Naver Corp. launched the HyperCLOVA X chatbot in 2023.
Bokyung Suh, a senior analyst at research firm Sanford C. Bernstein, said, "The company has been under pressure from retail investors and the government for a spinoff listing." He said Kim Beom-su's detention added uncertainty to the listing of Kakao Entertainment.
Park Ju-gun of research company Leaders Index said that Kim Beom-su's troubles arose from his decision to follow the strategic path of leading Korean companies. "After Kakao and Kim Beom-su achieved certain successes, the path they took was identical to that of the chaebols," he said.
"Kakao has been under pressure from government and retail investors to conduct spin-off listings," Bokyung Suh, senior analyst at research firm Sanford C. Bernstein, told Reuters. Kim's detention adds uncertainty to the planned listing of Kakao Entertainment, Suh said.