Prosecutors formally charged the entrepreneur with market violations during his company’s takeover battle for SM Entertainment Co., Yonhap News  reported Thursday. Kim was allegedly involved with an attempt to buy and push SM stock above a rival offer of 120,000 won ($87) from BTS-agency Hybe Co. Executives carried out that alleged maneuver over a total of four days, in mid-February 2023 as well as later that month, Yonhap said, citing prosecutors.

The billionaire who created Korea’s dominant social media platform is at the center of one of the country’s most sensational corporate cases in years. Kim was arrested in July for his suspected involvement in that alleged scheme — making him the highest-profile tech executive behind bars since prosecutors went after Samsung Electronics Co.’s Jay Y. Lee. Thursday’s indictment paves the way for an eventual trial, a date for which will be set later. Kim will remain in detention till then.

Kakao’s shares gained as much as 2.1% after the company reported an 81% surge in June-quarter net income. But longer term, the outcome of the case could have serious implications for a $25 billion business empire spanning several listed firms and a plethora of internet spheres. 

Kakao had pursued the deal to secure the content it needed to extend its dominance in markets from music and shopping to ride-hailing. Instead, it triggered legal scrutiny, and raised questions about the future of up-and-coming innovators as they challenge the country’s conglomerates.

A representative for the prosecutors’ office confirmed in a message that Yonhap’s report was accurate. Kim and Kakao spokespeople have repeatedly denied the allegations and said no illegal activities transpired during the acquisition of SM.

On Thursday, a company representative said it will explain the truth about what happened during the impending trial, and work to minimize any management disruption with Chief Executive Officer Chung Shina at the helm.

It’s a stunning turn for the 58-year-old Kim who amassed a fortune of $14.4 billion at its peak, earning his place as Korea’s richest person. As of this week, that had dropped to about $3.4 billion, according to the Bloomberg Billionaires Index.

His arrest also reflects a shift in attitude in South Korea. 

Kim and fellow entrepreneurs like Coupang Inc.’s Bom Kim were once hailed as pioneers who prevailed against Silicon Valley titans to create a Korean-centric internet — a high-growth, splashier alternative to the steel firms, chipmakers and shipbuilders that power Korea’s economy. 

But as their influence grew, government officials grew concerned about the way internet services were displacing smaller merchants and incumbents in banking, retail and entertainment. In 2022, a widespread outage after a datacenter fire exposed how much of the population relied on Kakao for basic needs such as news and commerce. 

Kim has since 2021 dealt with a host of investigations into everything from whether he was paying his taxes to alleged monopolistic behavior. Then came the bidding war against Hybe, the agency that represents the hit boy band BTS.

Financial regulators have accused executives at Kakao and unit Kakao Entertainment Corp. of buying 240 billion won ($173 million) of stock in SM at the time, to disrupt Hybe’s offer. The courts decided to detain Kim while investigators worked out the details.

Meanwhile, critics pointed out Kakao’s extraordinary number of affiliates with cross-shareholdings — more than 120 according to official data. 

That was reminiscent of the way in which the nation’s biggest conglomerates, or chaebol, expanded their dominance in past decades — a practice that’s spurred government crackdowns because of its potential for abuse.