The state financial regulator has referred Kakao Corporation founder Kim Beom-su to the prosecution over alleged stock manipulation in the company’s acquisition of SM Entertainment.

The Financial Supervisory Service(FSS) said on Wednesday that it had referred Kim, Kakao CEO Hong Eun-taek, Kakao Entertainment co-CEOs Lee Jin-soo and Kim Sung-soo, and lawyers who provided legal counseling with a recommendation to indict.

The company's management is suspected of inflating the share prices of SM, one of the country's major K-pop management firms, in a bid to obstruct a takeover earlier this year by Hybe, the parent company for BTS' management agency BigHit.

The FSS suspects Kakao schemed with a private equity fund operator to inject around 240 billion won, or some 184 million U.S. dollars, into the market, thereby surpassing 120-thousand won per share Hybe was offering small shareholders.

Hybe eventually suspended the bid, allowing Kakao and its subsidiary to jointly secure nearly a 40-percent stake in SM to gain management control. Kakao is also accused of failing to fulfill the compulsory declaration on their stock acquisition.

The Seoul Southern District Prosecutors' Office is expected to conduct a supplementary investigation into the Kakao founder's role in the alleged stock manipulation.

Prosecutors had earlier indicted Kakao chief investment officer Bae Jae-hyun for his alleged role in the case.