HYBE chairman Bang Si Hyuk may face prosecution over undisclosed IPO profit scheme

Bang Si Hyuk undisclosed profit from HYBE IPO

HYBE chairman Bang Si Hyuk is at risk of being indicted for suspected capital markets manipulation.

The founder and chairman of HYBE, Bang Si Hyuk, is expected to face a referral to prosecutors on accusations that he violated Korea’s Capital Markets Act in both fraudulent and unfair trading.

HYBE IPO non-disclosure violation of disclosure rules

According to reports from financial regulators and the investment industry on July 9th KST, the Capital Market Investigation Deliberation Committee (CMIDC), an advisory committee of the Financial Services Commission’s (FSC) Securities and Futures Commission (SFC), has recently held a meeting and agreed to refer the case to the SFC for further steps. The commission’s decision about Bang’s case is to be decided on during its regular meeting on July 16th

The probe is based on suspicions that Bang had misled investors, saying here were no plans for HYBE’s initial public offering (IPO), to lead them to selling their stock to a private equity fund (PEF) linked to a close aide to Bang.

Bang Si Hyuk capital gains 30% PEF agreement

Industry insiders reported that Bang signed a shareholder agreement with PEFs, including Stick Investment, Eastone Equity Partners, and Newmain Equity, which went into effect in October 2020, before HYBE (formerly Big Hit Entertainment) went public. If HYBE went public with a certain period, Bang was to receive 30 percent of the PEFs capital gains as part of the agreement. If the IPO failed, he would purchase the shares back at the original price.

As it turned out, HYBE did go public within the agreed period but Bang allegedly made more than KRW 400 billion (around USD 290 million) from the deal.

Bang Si Hyuk shareholder agreement investigations

The reason for the controversy is that this shareholder agreement was not revealed at the time of HYBE’s IPO. Both HYBE and the IPO underwriters were said to have been informed of the contract, but judged that it did not need to be disclosed under domestic and international regulations at the time.

But the criticism intensified as early backers said they lost money when the financials were not as they appeared to be. The police and financial regulators are now investigating.

Previously, law enforcement had applied twice for warrants to search HYBE, but prosecutors turned down the requests. The result of the July 16th SFC meeting will likely indicate whether the case is taken to formal prosecution.