Financial authorities and prosecutors jointly raided tech giant Kakao Corp. on the suspicion that it participated in stock price manipulation during its takeover of K-pop agency SM Entertainment.

The Financial Services Commission on Thursday sent a team of 40 investigators to Kakao and its affiliate Kakao Entertainment in Pangyo, Gyeonggi Province to seize internal documents and other related data.

Authorities are looking into the possibility that Kakao violated the Capital Markets Act when it was in a battle with Hybe, the entertainment agency behind BTS, to take over SM.

Kakao and Kakao Entertainment are facing investigation over having allegedly artificially inflated the stock price of SM in an attempt to block Hybe from taking control of SM.

Kakao may also have failed to comply with the rules that require a shareholder to file a public disclosure when acquiring more than 5 percent of a company’s outstanding shares.

In February, Hybe submitted a petition to the financial regulator asking for a probe into a "suspicious" large purchase deal of SM stocks.

In February, Hybe made a tender offer to SM at 120,000 won ($91.08) per share to scoop up 25 percent of SM's shares, but the plan was thwarted as SM’s stock price soared.

Hybe asserted that an abnormal purchase of 2.9 percent of SM's issued shares had taken place at IBK Investment Securities’ Pangyo branch, leading to the suspicions of a law breach.

The entertainment giant further explained that since this transaction had occurred during a critical period when SM's stock price had surged to 130,000 won, it strongly suspects that the purchase was made to manipulate the market price to interfere with its tender offer.

On March 13, Hybe announced that it was withdrawing from its heated contest with Kakao over control of the management of SM.

Kakao and Kakao Entertainment became SM's largest shareholders by securing a 20.78-percent and 19.14-percent stake in SM, respectively.