BTS creator to face prosecution probe for defrauding investors

HYBE Chairman and Founder Bang Si-hyuk attends the 64th annual meeting of the Federation of Korean Industries in the business lobby's headquarters in Seoul, Feb. 20. Newsis

Financial authorities are planning to refer HYBE Chairman Bang Si-hyuk to prosecutors on charges of securities fraud, industry officials said Wednesday.

Bang is alleged to have defrauded investors and pocketed about 400 billion won ($291 million) during the company’s initial public offering (IPO) process.

The capital market investigation team, an advisory body under the Financial Services Commission's Securities and Futures Commission (SFC), held a meeting on Monday and decided to file a complaint with the prosecution against Bang.

The team submitted its opinion to the SFC, which is expected to address the agenda at its meeting on July 16.

Referral to the prosecution is the most severe action financial regulators can take against an individual suspected of violating the Capital Markets Act. Decisions made by the investigation team are rarely reversed.

The Financial Supervisory Service (FSS) has been investigating Bang over allegations that he misled investors in 2019 by falsely claiming the company had no plans to go public.

Investors who trusted Bang sold their shares to a private equity fund established by his acquaintance, whose surname is Yang. However, during the same period, HYBE was actively moving forward with the process, including designating an external auditor.

The 2020 IPO was a dramatic event in itself. Priced at 135,000 won per share, HYBE's stock surged to over 420,000 won on its debut, reflecting a 160 percent gain from the offering price. However, within a week, the stock plummeted nearly 70 percent from its peak as private equity funds unloaded a large volume of shares onto the market.

Bang is reported to have received about 400 billion won in profits, roughly 30 percent of the affiliated private equity fund's investment gains.

The FSS concluded that early investors incurred losses due to these actions. It also noted that the contract between Bang and the private equity fund should have been disclosed in the securities registration statement during the IPO process.

In response to the allegations, HYBE stated that "all transactions were carried out legally by undergoing thorough legal reviews."

"We apologize for causing concern due to news related to our IPO process," the company said in a statement Wednesday. "We are actively cooperating with financial authorities and the police by providing detailed explanations and submitting relevant documents regarding the matters currently under investigation."

HYBE's stock tumbled on Wednesday amid escalating concerns over Bang's legal troubles. The stock price closed at 277,000 won, down 1.6 percent from the previous day.

The risk dampened the stock's recent upward trend, which had been fueled by expectations of a full-group BTS comeback after the members completed their mandatory military service. On July 2, the stock had hit its upper limit of 323,000 won.