Will the man behind BTS go to jail?

HYBE Chairman Bang Si-hyuk / Courtesy of HYBE

Bang Si-hyuk, founder and chairman of HYBE, the K-pop powerhouse behind BTS, is under investigation by the Financial Supervisory Service (FSS) for allegedly defrauding investors and pocketing some 400 billion won ($289 million) during the company’s initial public offering (IPO) process, according to sources in the financial industry Thursday.

The financial watchdog reportedly suspects that the case may constitute fraudulent and unfair trading practices that undermine capital market order, and is preparing to refer the case to the prosecution through a fast-track process for an expedited investigation.

If the allegations are confirmed, Bang could face severe legal consequences, as offenses involving illegal profits or avoiding losses of over 5 billion won are punishable under the Capital Markets Act by a minimum of five years in prison and up to life imprisonment.

Bang is suspected of having agreed to share 30 percent of the capital gains from a stake sale with a private equity fund (PEF) established by an acquaintance prior to HYBE’s IPO in 2020, ultimately receiving around 400 billion won after the company went public.

The PEF acquired a large volume of HYBE shares from existing investors, including venture capital firms, just before the IPO.

The FSS alleges that Bang misled these investors by claiming that an IPO was not possible at the time, while secretly pushing ahead with plans to go public.

The watchdog also suspects that this statement may have influenced investors' decision to sell their stakes to the PEF, as they believed going public was unlikely and thus saw limited prospects for recovering their investments otherwise.

The shareholder agreement between Bang and the PEF was omitted in the securities registration statement submitted to the FSS. As a result, early investors who purchased HYBE shares without knowledge of this agreement suffered losses.

On Oct. 15, 2020, HYBE began trading at 270,000 won — double its IPO price of 135,000 won — and even surged to 350,000 won intraday. However, after the PEF started offloading large volumes of shares, the stock price plummeted to the 140,000 won range within two weeks.

A FSS official stated, "We cannot confirm whether an investigation into a specific company is being conducted or disclose details of any investigation."

Following news of Bang being under investigation, HYBE's stock price dropped on Thursday. The company's shares fell by 2.51 percent, closing at 272,000 won, while the KOSPI rose by 50.49 points to close at 2,720.64.

The owner-related risk appears to have triggered selling pressure among investors.