Hybe Tax Investigation Launched, Chairman Bang Si-hyuk Under Suspicion of 'Fraudulent Trading'

The National Tax Service has launched a tax investigation against the entertainment company Hybe, which is under investigation for 'fraudulent trading' involving Chairman Bang Si-hyuk.

The Seoul Regional Tax Office's Investigation Division 4 dispatched officials to Hybe's headquarters located in Yongsan, Seoul, on the 29th to secure relevant documents.

This tax investigation differs from typical regular tax audits.

Tax audits are usually conducted once every 4 to 5 years, but Hybe is undergoing a sudden audit just 3 years after its last one. The National Tax Service announced that it would conduct a large-scale tax investigation targeting 27 companies involved in activities such as 'stock manipulation,' and it appears that Hybe is included in this list.

Allegation of 400 Billion Won Capital Gains

Chairman Bang Si-hyuk is accused of misleading existing Hybe investors, including venture capitalists, in 2019 prior to the company's initial public offering (IPO), making them believe that the IPO would be delayed. Subsequently, Hybe executives sold shares to a special purpose company (SPC) established by the private equity fund they invested in. This act may be considered 'fraudulent trading' under the Capital Markets Act.

After Hybe went public, the SPC sold its shares, and it is reported that Chairman Bang received 30% of the SPC's sale profits according to a secret contract made with the private equity fund in advance. Financial authorities believe that Bang earned approximately 400 billion won ('kickbacks') due to Hybe's public listing, categorizing this as 'fraudulent trading.'

What is more serious is that immediately after the listing, the private equity funds linked to Bang sold their shares in large quantities, causing a significant drop in stock prices and resulting in substantial losses for ordinary shareholders at the time.

The National Tax Service has reportedly detected suspicions of tax evasion on Hybe's part during this process.

Simultaneous Investigations Underway

Currently, the Financial Supervisory Service's special judicial police, under the guidance of the police and prosecution regarding Chairman Bang's fraudulent trading allegations, are also conducting investigations. With the addition of the National Tax Service's tax investigation, the scrutiny towards Hybe and Chairman Bang is expected to become more intensive.

The National Tax Service predicted that the total amount of tax evasion by the 27 companies would reach 1 trillion won, of which a significant portion is suspected to be related to Hybe.

However, a National Tax Service official stated, "We cannot confirm anything regarding the tax audit," and Hybe has also not released a separate statement regarding this investigation.

Lee Jae-myung Government's Commitment to Severe Punishments for Stock Manipulation

This tax investigation has garnered attention as it takes place amid the Lee Jae-myung government's pledge to impose severe penalties for stock manipulation as part of measures for the 'KOSPI 5000 Era.'

President Lee emphasized during his visit to the Korea Exchange on the 11th of last month, "I will make it a firm day to show that those who play tricks in the South Korean stock market will face bankruptcy."

Additionally, National Tax Service Commissioner Lim Kwang-hyun stated in his inauguration speech on the 23rd, "We must respond more thoroughly to disturbances in the capital market, such as stock manipulation." It appears that the government's strong will is also reflected in this tax investigation into Hybe.

This incident has drawn significant attention from the entertainment industry and investors due to the allegations involving Hybe, one of the representative companies in the K-pop industry and Chairman Bang Si-hyuk.

Depending on the results of the investigation, it is anticipated that there will be considerable impacts on Hybe's corporate image and stock price.

Image sources: Bang Si-hyuk, Chairman of Hybe / News1, Hybe Headquarters / News1, President Lee Jae-myung / News1, Commissioner Lim Kwang-hyun / National Tax Service