BTS mastermind Bang Si Hyuk may face life in prison over suspected $290 million fraud; HYBE shares plunge

Also read: Explained: Controversy and drama at Hybe, the K-pop company behind BTS

Bang Si Hyuk under criminal investigation by FSS

Back in 2019, when Bang’s HYBE was still called BigHit Entertainment, the FSS suspects that he hid his plans from investors to enlist the company for an Initial Public Offering. At the time, venture capitalists and institutional investors were wondering if the K-pop agency planned to go public. But, according to these investors, Bang told them there were no such plans at the time, and that statement convinced many to sell their shares, believing there was no upcoming public stock listing and thinking there might not be much profit if they held on to the shares. But as the investigation is launched, the FSS says they have gotten their hands on evidence that Bang secretly planned to list the company on IPO. They even applied for a designated auditor, a legal step that’s required before a company can list on the stock market.

Also read: ‘We’re getting a BTS concert’: Indian fans hopeful as HYBE plans Mumbai office

But where did the money go? Sources shared with officials that Bang signed a deal with a private equity fund (PEF), which in return purchased all the sold shares. This fund had been set up by someone close to Bang Si Hyuk. And in 2020, when BigHit’s K-pop groups were doing commercially well on the global front, HYBE did go public, and the value of those shares skyrocketed. Further investigation reveals that Bang Si Hyuk even had a secret arrangement with the PEF which stated that he was entitled to 30% of the profits from their investment. These were the profits that came directly from buying those undervalued shares and then selling them after HYBE’s IPO, something that was never disclosed by the company. That deal earned him around 400 billion KRW, or $290 million.

Why is this illegal?

Under South Korea’s Capital Markets Act, it is important for investors to be transparent about financial agreements while filing for an IPO. Failing to do so is considered fraudulent and unfair trading. The FSS is trying to prove that Bang made the investors sell their shares early on so that his close friends and partners could purchase those, and he could secretly profit — he could be charged under Article 443 of the law. And if the profit earned from such fraudulent trading exceeds 5 billion KRW (this one is 400 billion KRW), the punishment is a minimum of 5 years in prison, and in extreme cases, life imprisonment.

The FSS has already finished most of their investigation. They’re preparing to send it to prosecutors through a fast-track process, meaning things are moving quickly. A HYBE spokesperson has denied all the allegations, claiming that all the transactions were reviewed by lawyers and were within legal limits. But, investigators claim they have access to records of HYBE holding internal meetings and filing paperwork with EY Hanyoung (an external auditor) in November 2019, showing they were absolutely preparing for IPO.