Kakao risks losing management control of Kakao Bank

Korean tech conglomerate Kakao could lose its controlling shareholder position in its internet-only bank affiliate, as its top leaders have become embroiled in stock manipulation allegations stemming from the acquisition of K-pop agency SM Entertainment.

On Friday, the country’s financial watchdog Financial Supervisory Service summoned Kakao founder Kim Beom-soo to appear for questioning on Monday for an investigation into the mobile platform service provider’s possible violation of the Capital Markets Act when it was in a battle with Hybe, the entertainment agency behind BTS, to take over SM.

Kakao Chief Investment Officer Bae Jae-hyun was arrested Thursday on charges of market manipulation related to SM's stock price.

As financial authorities have expanded the probe into Kakao to include its top management, the possibility that Kakao’s control over its banking unit could be jeopardized is growing.

Kakao is the largest shareholder of Kakao Bank, holding just one common share more than the second-biggest shareholder, Korea Investment & Securities.

Both firms hold stakes of 27.17 percent in Kakao Bank.

Financial authorities review the eligibility of major shareholders of internet banks every six months to determine whether to maintain authorization.

In such an event that registered executives of Kakao and Kakao Entertainment, the entities that purchased SM Entertainment's shares, are indicted and confirmed to have violated the Capital Markets Act, and face heavier penalties than a fine, Kakao will lose its eligibility to be a major shareholder of Kakao Bank.

In this case, the Financial Services Commission would order Kakao to dispose of any shares that would exceed a 10 percent stake in Kakao Bank. Typically, the deadline for selling shares is six months from the date of the order.

Shares of Kakao Bank closed down 5.01 percent at 21,800 won ($16.11) on Friday, while Kakao shares shed 3.58 percent to close at 39,050 won.