South Korean prosecutors have announced plans for an extensive investigation into the former CEO of Kakao, a renowned tech giant, regarding allegations of crypto embezzlement.
South Korea’s Kakao
South Korea is home to Kakao, the largest internet conglomerate in the country.
The conglomerate operates several platforms, including KakaoTalk, KakaoPay, KakaoTaxi, KakaoStory, and KakaoStock, among others, which hold significant sway in their respective markets.
Kakao's influence extends to the cryptocurrency sphere, notably through its crypto exchange-affiliated neobanking service, KakaoBank.
Additionally, the company introduced the KLAY token through its overseas branches and unveiled a well-received crypto wallet in 2020.
Kakao's Ex-CEO Facing Crypto Investigation
Following a report filed by a civic group, Economic Democracy 21 (경제민주주의 21), the Joint Virtual Asset Crime Investigation Team of the Seoul Southern District Prosecutor's Office officially initiated an inquiry on 11 October.
The allegations against the ex-Kakao chairman and branch executives revolve around their involvement in embezzlement and breach of trust concerning cryptocurrency transactions under the Aggravated Punishment for Specific Economic Crimes Act and fraudulent transactions under the Capital Markets Act.
Economic Democracy 21 claims that the company created the virtual currency 'Klay' through a subsidiary, raised funds by selling it to investors, and subsequently misappropriated the proceeds instead of utilising them for associated business ventures.
The estimated misappropriation during the $KLAY pre-sales is believed to be between 150 billion won and 300 billion won.
Additionally, the organisation has accused Klaytn branch managers of engaging in insider trading, allegedly diverting cryptocurrency under false pretenses of an "overseas investment project," redirecting the investments to a subsidiary company.
However, Kakao affiliate representatives have requested a period to conduct internal inquiries into the accusations, contending that the claims are unsubstantiated.
A Kakao official stated:
“We cannot comment much on this case. But the allegations are one-sided and groundless.”
South Korean Dependency on Kakao's Services
KakaoTalk serves as the primary communication platform for more than 80% of South Korea's 50 million residents.
Furthermore, KakaoTaxi remains the favoured choice for taxi services, while KakaoPay ranks among the most widely used mobile payment systems in the country.
The recent occurrence may influence the degree of South Koreans' dependence on and faith in Kakao, given the company's integral role in the nation's communication and various service sectors.