The Seoul Southern District Court approved a warrant for the arrest of the social media giant's chief investment officer, Bae Jae-hyun, citing concern about possibility of evidence destruction and flight risk.

Bae has denied wrongdoing, saying it was a legitimate stock purchase on the market. Kakao spokespeople could not be immediately reached.

Kakao had competed with HYBE, the management agency parent of K-Pop supergroup BTS, to acquire a controlling stake in SM Entertainment early this year.

Now Kakao and affiliate Kakao Entertainment together control about 40% stake in SM.

Prosecutors said they suspected Bae and other Kakao executives of inflating SM Entertainment's share price above HYBE's tender offer price by investing about 240 billion won, and failing to report its stake during the course of the takeover war.

The wider market closed down 1.9%.

(Reporting by Joyce Lee)