The Seoul Southern District Prosecutors’ Office said yesterday that it asked a judge to issue a warrant for Brian Kim (Kim Beom-su), the founder of internet giant Kakao. Financial regulators have accused Kakao executives of buying 240bn ( $178mn) of SM Entertainment shares to undermine a tender offer from rival bidder and K-pop agency Hybe. Kakao’s chief investment officer Bae Jae-hyun was arrested in October last year, bae has denied any wrongdoing. The decision to arrest Kim comes after South Korea  vowed to crack down on insider trading and share price manipulation to clean up the stock market and boost investor returns.

Kakao took over SM in 2023 after an intense bidding war with Hybe. The battle sent SM’s stock to a record high in March last year, but Hybe withdrew its bid later that month after Kakao made a higher counter offer. Kakao has denied the allegations and said there were no illegal activities during its acquisition of SM. “Kim did not order to tolerate  any illegal act in buying SM shares last year. It was a normal transaction in the stock market for business co-operation” said Kim’s lawyers.

Kim was one of the country’s richest people in 2021 with a net worth of more than $13,5bn, but his wealth has fallen as his company confronts  the crisis around K-pop deal. Kakao’s share price has fallen 24 per cent this year. K-pop attracts fans from across  the globe, but the industry has been hit with accusations of tax evasion, financial mismanagement and sexual misconduct. In June, prosecutors charge three employees of Hybe’s subsidiaries with insider trading, accusing them of selling shares in the agency before boy band BTS announced its members would go on hiatus in 2022. The three staff could not be reached for comment.

Only this month Seoul revised rules on insider trading to protect minority investors. Companies will be required to disclose large stock transactions of more than Won 5bn or 1 per cent of their issued shares involving major investors or executives at least 30 days in advance.