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Lee & Ko successfully secured a full acquittal for Kakao Corp. and related entities in a criminal prosecution alleging violations of the Financial Investment Services and Capital Markets Act (the “Capital Markets Act”) in connection with the SM market manipulation case.

The prosecution arose from events in February 2023, when HYBE announced a tender offer for shares of SM Entertainment Co., Ltd. (“SM”). Prosecutors alleged that Kakao Corp. and Kakao Entertainment Corp., in concert with One Asia Partners, engaged in on-exchange purchases of SM shares during the tender offer period, and that such conduct constituted market manipulation under Article 176(3) of the Capital Markets Act, specifically, a “series of transactions conducted for the purpose of fixing or stabilizing market prices.”

This case was unprecedented in that on-exchange share purchases during an ongoing tender offer period were prosecuted as market manipulation. A conviction could have created a substantial risk that similar on-exchange purchases during tender offer periods would be subject to criminal liability in the future. Accordingly, the case attracted significant attention not only within the capital markets industry, but also across the broader business and financial communities.

Lee & Ko represented Kakao Corp. and its related entities from the early stages of the investigation and throughout the trial, and effectively challenged the prosecution’s theory. The court accepted Lee & Ko’s arguments and expressly held that the on-exchange purchases were not undertaken for the purpose of fixing or stabilizing market prices, but rather constituted legitimate business decisions made to secure an equity interest.

This acquittal represents a significant judicial determination regarding the scope of permissible corporate actions in the context of corporate control disputes. In particular, the ruling is expected to serve as an important precedent in clarifying whether on-exchange purchases during a tender offer period may give rise to criminal liability. The judgment is also notable as a clear affirmation by a criminal court of the legitimacy of corporate managerial decision-making in such circumstances.