Financial authorities have decided to file a criminal complaint with the prosecution against Bang Si Hyuk, the chairman of the entertainment corporation HYBE, on charges including stock market fraud. The allegation is that during the process of taking HYBE public, he deceived existing investors by claiming there were no plans for a stock market listing, induced them to sell their shares, and then reaped profits amounting to 200 billion KRW ($145 million) from the IPO. The same decision was made for three former HYBE executives also suspected of involvement. A criminal complaint to the prosecution is the highest level of sanction that financial authorities can impose on an individual for violating the Capital Market Act.
According to financial authorities on July 8th, the Capital Market Investigation Deliberation Committee, an advisory body to the Securities and Futures Commission (SFC) under the Financial Services Commission, made this decision in a meeting on July 7th and forwarded its opinion to the SFC. If the SFC finalizes this decision at its regular meeting on July 16th, it will be the first instance of financial authorities imposing a strong sanction on a major figure since President Lee Jae Myung took office.
>> Bang Si Hyuk Questioned by Financial Regulators Over Alleged Fraud in HYBE IPO Deal
Financial Authorities View Bang Si Hyuk’s Alleged 200 Billion KRW Investor Deception as a Serious Offense
A financial authority official stated, “We determined that Chairman Bang’s actions were not minor and warrant heavy punishment because they deceived and caused significant harm to general investors.” Meanwhile, the current Capital Market Act stipulates that if illegal profits gained or losses avoided exceed 5 billion won ($3.6 million), the penalty can be life imprisonment or a minimum of five years in prison.
The decision by financial authorities to impose the highest level of sanction on Chairman Bang comes from their judgment that his alleged offenses are considerably serious. According to financial authorities on July 8th, Chairman Bang signed a contract agreeing to receive over 30% of the capital gains from share sales through a private equity fund established by his close associates at HYBE around 2020 before HYBE’s IPO.
However, he informed investors holding HYBE stock that there were no plans for an IPO and induced them to sell their shares to the said private equity fund, offering to buy them at a reasonably high price. The shareholders who believed this sold their shares. It is reported that Chairman Bang earned approximately 200 billion won from the profits the private equity fund made by selling the stock after the IPO.
A financial authority official said, “It appears that the private equity fund was used to bypass the lock-up period (which prevents major shareholders and executives from selling stock for a certain period after an IPO) designed to protect individual investors from the major shareholder dumping a large volume of shares on the market.”
During a recent investigation by the Financial Supervisory Service (FSS), Chairman Bang reportedly expressed that this type of transaction was not legally problematic. However, the FSS concluded that his actions violated Article 178 of the Capital Market Act, a provision designed to regulate new forms of unfair trading not anticipated by the law. The FSS then submitted its opinion to the Financial Services Commission that a criminal complaint was necessary. The Capital Market Investigation Deliberation Committee is reported to have accepted this. The financial authority official added, “The stock price fell as the private equity fund associated with Chairman Bang dumped shares onto the market, causing considerable damage to general investors. As this was an organized market disruption involving HYBE executives, we believe a guilty verdict is highly likely.”
The decision to impose the highest level of sanction on Chairman Bang is not unrelated to the launch of the Lee Jae Myung administration. As a presidential candidate, President Lee pledged a “one-strike-out” system to permanently ban anyone caught for stock price manipulation from the market. He reaffirmed this during his visit to the Korea Exchange last month.
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