Korean prosecutors file warrant to arrest Kakao founder for stock manipulation

Kakao Entertainment

Image Credits: Kakao Entertainment

South Korean prosecutors said on Wednesday that they have filed an arrest warrant for Brian Kim, the founder of Korean internet giant Kakao, as part of an investigation into alleged stock market manipulation related to a high-profile bidding war for SM Entertainment, one of the country’s biggest music labels, in 2023.

The warrant comes a week after Seoul-based prosecutors launched a probe into Kim’s involvement in the alleged manipulation of SM Entertainment’s share price.

Kakao did not respond to a request for comment ahead of publication.

In March 2023, Kakao and Kakao’s subsidiary, Kakao Entertainment, became the controlling shareholder in SM Entertainment after winning a bidding war for a 39.9% stake in the K-pop label. Kakao was competing with Hybe, the owner of South Korean music agency BigHit, known for signing the popular K-pop boy band, BTS. Kakao had launched a tender offer to buy SM Entertainment’s shares at 150,000 KRW ($115) each, eclipsing an earlier tender offer by Hybe priced at 120,000 KRW (~$87) per share.

A tender offer is when a company goes directly to a target company’s shareholders to buy their shares within a set period. The objective of a tender offer is usually to take control of the target company, and the success of such an offer often depends on the buyer obtaining a certain percentage stake.

Korean prosecutors suspect that the price of SM Entertainment’s shares was manipulated right before the deal was closed. Kakao is reportedly accused of purchasing KRW 240 billion (approximately $174 million) of SM Entertainment’s shares over 553 trades in February 2023. That allegedly drove the company’s share price above Hybe’s tender offer price of 120,000 KRW per share, which caused Hybe to withdraw its offer.

Kakao is also accused of not reporting the large stock purchases to financial authorities.

Kakao’s chief investment officer, Jae-Hyun Bae, was arrested last October following allegations of stock price manipulation after the takeover. He is currently on trial.

Following Kakao’s acquisition of SM Entertainment last March, Hybe sold off a portion of its stake in the agency to Kakao, reducing its ownership to 8.8% from 15.8%.

Founded in 2006, Kakao is one of South Korea’s biggest internet firms. It operates popular messaging service Kakao Talk, on-demand taxi service Kakao Mobility, online banking platform Kakao Bank, music streaming service Melon and comics hosting platform Kakao Webtoon.

If Kakao’s chief investment officer and other executives at Kakao Entertainment are found to be in violation of South Korea’s Capital Markets Act and incur bigger penalties than a fine, the country’s financial regulator could compel Kakao to divest at least 10% of its ownership in its online banking subsidiary, Kakao Bank.

According to South Korea’s online banking regulations, in order to have more than 10% of the voting rights in mobile-only banks, non-financial companies must not have breached financial laws, such as the Capital Markets Act, or fair trade laws in the last five years.

US border agents must get warrant before cell phone searches, federal court rules

International travelers wait to have their passports checked at O'Hare International Airport on September 19, 2014 in Chicago, Illinois

Image Credits: Scott Olson / Getty Images

A federal district court in New York has ruled that U.S. border agents must obtain a warrant before searching the electronic devices of Americans and international travelers crossing the U.S. border.

The ruling on July 24 is the latest court opinion to upend the U.S. government’s long-standing legal argument, which asserts that federal border agents should be allowed to access the devices of travelers at ports of entry, like airports, seaports and land borders, without a court-approved warrant.

Civil liberties groups who advocated for the ruling praised the judgment. 

“The ruling makes clear that border agents need a warrant before they can access what the Supreme Court has called ‘a window into a person’s life,’” Scott Wilkens, senior counsel at the Knight First Amendment Institute, one of the groups that filed in the case, said in a press release Friday.

The district court’s ruling takes effect across the U.S. Eastern District of New York, which includes New York City-area airports like John F. Kennedy International Airport, one of the largest transportation hubs in the United States. 

A spokesperson for U.S. Customs and Border Protection (CBP), the agency responsible for border security, said it was “reviewing” the court’s decision. “CBP cannot comment on pending criminal cases, and will continue performing its vital national security mission consistent with law and policy,” said CBP spokesperson Justin Long.

The court ruling regards a criminal case involving Kurbonali Sultanov, a U.S. citizen whose phone was taken by border agents at JFK Airport in 2022 and told to provide his password, which Sultanov did when officers told him that he had no choice. Sultanov later moved to suppress the evidence — alleged to be child sexual abuse material — taken from his phone by arguing that the search violated his Fourth Amendment rights. 

The U.S. border is a legally fuzzy space, where international travelers have almost no right to privacy and where Americans can also face intrusive searches. The U.S. government asserts unique powers and authorities at the border, such as conducting device searches without a warrant, which law enforcement cannot normally use against someone who had crossed onto U.S. soil without first convincing a judge of enough suspicion to justify the search.

Critics have for years argued that these searches are unconstitutional and violate the Fourth Amendment, which protects against unwarranted searches and seizures of a person’s electronic devices. 

In this court ruling, the judge relied in part on an amicus brief filed on the defendant’s behalf that argued the unwarranted border searches also violate the First Amendment on grounds of presenting an “unduly high” risk of a chilling effect on press activities and journalists crossing the border.

The judge in the case quoted the amicus brief, filed by the Knight First Amendment Institute at Columbia University and the Reporters Committee for Freedom of the Press, adding that the court “also shares [the groups’] concerns about the effect of warrantless searches of electronic devices at the border on other freedoms protected by the First Amendment — the freedoms of speech, religion, and association.”

The judge said that had the court sided with the government’s argument that device searches at the border do not require any suspicion, “the targets of political opposition (or their colleagues, friends, or families) would only need to travel once through an international airport for the government to gain unfettered access to the most ‘intimate window into a person’s life,’” the latter quoting an earlier U.S. Supreme Court ruling on cell phone privacy. 

While the court ruled that the warrantless search of Sultanov’s phone was unconstitutional, the court concluded that the government had acted in good faith at the time of the search and dismissed Sultanov’s motion to suppress the evidence from his phone.

It’s not yet known if federal prosecutors will appeal the decision to the U.S. Court of Appeals for the Second Circuit, which includes New York.

According to CBP’s own data, the federal border agency conducted more than 41,700 device searches of international travelers during 2023.

Lawmakers have long tried to seal the border search loophole by crafting legislation aimed at requiring U.S. law enforcement officials to obtain a warrant for device searches at the border. The bipartisan legislation ultimately failed, but lawmakers have not given up on ending the practice altogether. 

With several federal courts ruling on border searches in recent years, the issue of their legality is likely to end up before the Supreme Court, unless lawmakers act sooner.

Read more on TechCrunch:

Security researcher warns of chilling effect after feds search phone at airportCBP says it’s ‘unrealistic’ for Americans to avoid its license plate surveillanceAnother US visa holder was denied entry over someone else’s messages

Updated with comment from CBP.

US border agents must get warrant before cell phone searches, federal court rules

International travelers wait to have their passports checked at O'Hare International Airport on September 19, 2014 in Chicago, Illinois

Image Credits: Scott Olson / Getty Images

A federal district court in New York has ruled that U.S. border agents must obtain a warrant before searching the electronic devices of Americans and international travelers crossing the U.S. border.

The ruling on July 24 is the latest court opinion to upend the U.S. government’s long-standing legal argument, which asserts that federal border agents should be allowed to access the devices of travelers at ports of entry, like airports, seaports and land borders, without a court-approved warrant.

Civil liberties groups who advocated for the ruling praised the judgment. 

“The ruling makes clear that border agents need a warrant before they can access what the Supreme Court has called ‘a window onto a person’s life,’” said Scott Wilkens, senior counsel at the Knight First Amendment Institute, one of the groups that filed in the case said in a press release Friday.

The district court’s ruling takes effect across the U.S. Eastern District of New York, which includes New York City-area airports like John F. Kennedy International Airport, one of the largest transportation hubs in the United States. 

A spokesperson for U.S. Customs and Border Protection, the agency responsible for border security, did not respond to a request for comment outside of business hours.

The court ruling regards a criminal case involving Kurbonali Sultanov, a U.S. citizen whose phone was taken by border agents at JFK Airport in 2022 and told to provide his password, which Sultanov did when officers told him that he had no choice. Sultanov later moved to suppress the evidence — alleged to be child sexual abuse material — taken from his phone by arguing that the search violated his Fourth Amendment rights. 

The U.S. border is a legally fuzzy space, where international travelers have almost no right to privacy and where Americans can also face intrusive searches. The U.S. government asserts unique powers and authorities at the border, such as conducting device searches without a warrant, which law enforcement cannot normally use against someone who had crossed onto U.S. soil without first convincing a judge of enough suspicion to justify the search.

Critics have for years argued that these searches are unconstitutional and violate the Fourth Amendment, which protects against unwarranted searches and seizures of a person’s electronic devices. 

In this court ruling, the judge relied in part on an amicus brief filed on the defendant’s behalf that argued the unwarranted border searches also violate the First Amendment on grounds of presenting an “unduly high” risk of a chilling effect on press activities and journalists crossing the border.

The judge in the case quoted the amicus brief, filed by the Knight First Amendment Institute at Columbia University and the Reporters Committee for Freedom of the Press, adding that the court “also shares [the groups’] concerns about the effect of warrantless searches of electronic devices at the border on other freedoms protected by the First Amendment — the freedoms of speech, religion, and association.”

The judge said that had the court sided with the government’s argument that device searches at the border do not require any suspicion, “the targets of political opposition (or their colleagues, friends, or families) would only need to travel once through an international airport for the government to gain unfettered access to the most ‘intimate window into a person’s life,’” the latter quoting an earlier U.S. Supreme Court ruling on cell phone privacy. 

While the court ruled that the warrantless search of Sultanov’s phone was unconstitutional, the court concluded that the government had acted in good faith at the time of the search and dismissed Sultanov’s motion to suppress the evidence from his phone.

It’s not yet known if federal prosecutors will appeal the decision to the U.S. Court of Appeals for the Second Circuit, which includes New York.

According to CBP’s own data, the federal border agency conducted more than 41,700 device searches of international travelers during 2023.

Lawmakers have long tried to seal the border search loophole by crafting legislation aimed at requiring U.S. law enforcement officials to obtain a warrant for device searches at the border. The bipartisan legislation ultimately failed, but lawmakers have not given up on ending the practice altogether. 

With several federal courts ruling on border searches in recent years, the issue of their legality is likely to end up before the Supreme Court, unless lawmakers act sooner.

Read more on TechCrunch:

Security researcher warns of chilling effect after feds search phone at airportCBP says it’s ‘unrealistic’ for Americans to avoid its license plate surveillanceAnother U.S. visa holder was denied entry over someone else’s messages

Korean prosecutors file warrant to arrest Kakao founder for stock manipulation

Kakao Entertainment

Image Credits: Kakao Entertainment

South Korean prosecutors said on Wednesday that they have filed an arrest warrant for Brian Kim, the founder of Korean internet giant Kakao, as part of an investigation into alleged stock market manipulation related to a high-profile bidding war for SM Entertainment, one of the country’s biggest music labels, in 2023.

The warrant comes a week after Seoul-based prosecutors launched a probe into Kim’s involvement in the alleged manipulation of SM Entertainment’s share price.

Kakao did not respond to a request for comment ahead of publication.

In March 2023, Kakao and Kakao’s subsidiary, Kakao Entertainment, became the controlling shareholder in SM Entertainment after winning a bidding war for a 39.9% stake in the K-pop label. Kakao was competing with Hybe, the owner of South Korean music agency BigHit, known for signing the popular K-pop boy band, BTS. Kakao had launched a tender offer to buy SM Entertainment’s shares at 150,000 KRW ($115) each, eclipsing an earlier tender offer by Hybe priced at 120,000 KRW (~$87) per share.

A tender offer is when a company goes directly to a target company’s shareholders to buy their shares within a set period. The objective of a tender offer is usually to take control of the target company, and the success of such an offer often depends on the buyer obtaining a certain percentage stake.

Korean prosecutors suspect that the price of SM Entertainment’s shares was manipulated right before the deal was closed. Kakao is reportedly accused of purchasing KRW 240 billion (approximately $174 million) of SM Entertainment’s shares over 553 trades in February 2023. That allegedly drove the company’s share price above Hybe’s tender offer price of 120,000 KRW per share, which caused Hybe to withdraw its offer.

Kakao is also accused of not reporting the large stock purchases to financial authorities.

Kakao’s chief investment officer, Jae-Hyun Bae, was arrested last October following allegations of stock price manipulation after the takeover. He is currently on trial.

Following Kakao’s acquisition of SM Entertainment last March, Hybe sold off a portion of its stake in the agency to Kakao, reducing its ownership to 8.8% from 15.8%.

Founded in 2006, Kakao is one of South Korea’s biggest internet firms. It operates popular messaging service Kakao Talk, on-demand taxi service Kakao Mobility, online banking platform Kakao Bank, music streaming service Melon and comics hosting platform Kakao Webtoon.

If Kakao’s chief investment officer and other executives at Kakao Entertainment are found to be in violation of South Korea’s Capital Markets Act and incur bigger penalties than a fine, the country’s financial regulator could compel Kakao to divest at least 10% of its ownership in its online banking subsidiary, Kakao Bank.

According to South Korea’s online banking regulations, in order to have more than 10% of the voting rights in mobile-only banks, non-financial companies must not have breached financial laws, such as the Capital Markets Act, or fair trade laws in the last five years.