South Korea’s Financial Supervisory Service (FSS) raided the office of the Kakao Founder Kim Beom-su amid allegations that the tech giant was involved in stock manipulation of SM Entertainment Co.

The raid comes four months after the FSS raided the headquarters of SM Entertainment Co. on April 18 and offices of Kakao Corp. and Kakao Entertainment Co. on April 6. The raids followed stock manipulation allegations in the process of Kakao buying shares of the entertainment giant.

The suspicions surrounding Kakao and its founder Kim came as the stock price of SM Entertainment surged following an official tender offer from Hybe Co., another bidder for acquiring the entertainment firm at 120,000 won ($90.92) per share.

Hybe announced the tender offer on February 10, and SM Entertainment’s share price stood at 114,700 won per share as of that day.

On February 16, during a previous tender offer by Hybe, however, an abnormal stock-buying practice involving 2.9 percent of the outstanding SM Entertainment shares was identified to occur at the Industrial Bank of Korea (IBK) branch in Pangyo, Gyeonggi Province.

While it’s not uncommon for stock prices to experience an upswing upon the announcement of a tender offer, Hybe argued that the buying practice was part of stock market manipulation by Kakao.

In response to the abnormal price surge, Hybe sent a request letter to the FSS, calling for an investigation into the alleged stock manipulation.

“The trading of SM Entertainment shares through the IBK Pangyo branch was suspected of a violation of the national capital market laws and part of market manipulation with an abnormal transaction,” Hybe said in a statement.

The Korea Exchange designated SM Entertainment as a stock that requires cautious investment during a single day on February 17 because its shares net purchased by the uncertain account amounted to more than 2 percent of the total common shares, with a rise of more than 5 percent in price from the previous trading day.

Starting from March 7 when Hybe failed in its tender offer, Kakao and its subsidiaries became the biggest shareholder of SM Entertainment, with a tender offer to secure 8.33 million shares at 150,000 won per share until March 26. The total investment amounted to 1.4 trillion won.

The FSS initiated its investigation into the allegations in collaboration with the prosecution.

By Choi Hee-seok and Han Yubin

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]