Korea's financial regulator raided the office of tech giant Kakao's founder Thursday in connection with allegations Kakao's executives were involved in manipulating stock prices of SM Entertainment, sources said.

According to the sources, a special investigation unit under the Financial Supervisory Service searched Kim Beom-su's office at Kakao headquarters in Pangyo, just south of Seoul.

Kakao has been suspected of manipulating stock prices of SM Entertainment earlier this year in the process of acquiring shares of the K-pop powerhouse.

The FSS has been investigating the allegations after Hybe, SM's rival agency behind global superstar BTS, filed a petition for a probe into the case with the agency in February.

Hybe was Kakao's rival in the bidding war to take over the management rights of SM, the entertainment agency behind EXO, Aespa and NCT.

In March, Kakao won the battle by securing a 40 percent stake in SM, becoming the largest shareholder of the agency.

Hybe initially bought a 14.8 percent stake in SM Entertainment from SM founder Lee Soo-man but later halted its takeover bid following an agreement with Kakao a few days after Kakao's tender offer started March 7.

Hybe has accused Kakao of manipulating SM's stock prices through another company to hinder Hybe from making a tender offer to secure a larger stake in SM. (Yonhap)