This article was published on July 22, 2025, at 4:35 p.m. on the ChosunBiz MoneyMove site.
Financial authorities have turned their scrutiny toward HYBE. Six months after the revelation of Chairman Bang Si-hyuk’s ’400 billion won secret contract' last November, the investigation has gained momentum, and on the 16th, the Securities and Futures Commission (SFC) has reported Chairman Bang and former executives of HYBE to the prosecution.
The SFC believes that Chairman Bang and others deceived existing shareholders, including Alpen Route Asset Management and LB Investment, as well as Vice President Choi Yoo-jung, by suggesting that the public listing (IPO) of HYBE would be delayed, despite preparations for it. The HYBE shares they held were acquired by a private equity fund (Estone PE) established by former executives of HYBE and were sold after the listing, with a profit of 400 billion won paid to Chairman Bang according to the contract.
The SFC has applied allegations of violations of the Capital Markets Act against Chairman Bang and others. However, many legal professionals assert that it is difficult to view this case as fraudulent trading under the Capital Markets Act, as it pertains to private transactions, which diverges from the intent and regulatory targets of the Act, and the time gap between the allegedly fraudulent acts and the realization of profit is too great.
◇ Capital Markets Act under American law... ‘Passive deceitful acts’ also subject to punishment
The controversy over Chairman Bang’s ’400 billion won side contract' pertains to a transaction where Estone Private Equity (PE) and New Main Equity purchased 130 billion won worth of HYBE stocks and entered into a revenue-sharing and option contract with Chairman Bang.
Estone PE acquired HYBE shares in two phases in 2019. In June, through ‘Estone No. 1 PE Fund’, it bought some equity from the Vice President Choi for 25 billion won, and in November, through ‘Mainstone LLC’, it acquired the remaining equity from Alpen Route Asset Management, LB Investment, and Vice President Choi for 105 billion won. After HYBE went public in 2020, Estone PE sold all its shares and made a profit of nearly 10 times, and shut down the following year.
The issue is whether Estone PE concealed HYBE’s listing plans while knowing about them, thereby acquiring shares from Alpen Route at a low price. Since Estone PE is an investment company led by former and current HYBE executives, including former Chief Investment Officer Kim Jung-dong, IPX Division Head Lee Seung-seok, and representative Yang Jun-seok from Korea Investment & Securities, there have been allegations that they deceived existing shareholders like Alpen Route and obtained undue benefits.
This time, the SFC determined that the actions of Chairman Bang and these former executives were illegal based on Article 178 of the Capital Markets Act. This provision, which defines ‘fraudulent trading’, tends to be broad and ambiguous, as our Capital Markets Act was enacted with reference to U.S. securities laws, which follow case law principles. Article 178 of the Capital Markets Act was created with reference to Section 10(b) of the U.S. Securities Exchange Act of 1934.
Article 178 of the Capital Markets Act stipulates that actions employing ‘fraudulent means, schemes, or devices’ (paragraph 1) or ‘providing false information or omitting material facts in documents necessary to avoid misleading others’ (paragraph 2) when buying and selling financial investment products are prohibited.
In the case of the latter, paragraph 2 regulates not only ‘actively deceiving by lying to mislead the other party’ but also ‘failing to disclose important facts,’ in other words, relatively passive deceitful acts. It appears that the SFC believes that the allegations against Chairman Bang for concealing the listing plans from Alpen Route fall under this paragraph.
◇ Proving criminal fraud charges seems challenging... HYBE ‘never deceived anyone about listing’
Many legal professionals believe that applying this provision to the HYBE case is inappropriate, as fraudulent trading was originally introduced to regulate acts affecting the capital market.
A capital markets specialized lawyer stated, ‘At that time, HYBE was a privately held company, so there was no entity that could be considered a ‘market,’ and it is difficult to say that those who could claim to be harmed were only a very few, such as Alpen Route. Thus, it is inappropriate to bring charges of fraudulent trading, which involves public capital markets, into private transactions.’
Instead, legal experts unanimously suggest that it is more appropriate to examine whether there is ‘criminal fraud’. However, since criminal law does not fall under the jurisdiction of the SFC, the establishment of fraud charges can only be discussed once the case is handed over to the prosecution.
If the prosecution charges Chairman Bang with criminal fraud, how likely is it that the charges would hold? Another capital markets specialist lawyer noted, ‘Fraud is a much narrower concept than fraudulent trading under the Capital Markets Act, and for charges to be recognized, there must be active deceitful conduct.’ He added, ‘Simply stating that there is no plan to go public soon would not qualify as an ‘active misleading act’ in terms of fraud.’
HYBE has asserted that it never lied to Alpen Route or others about plans to go public. At the time when Estone PE bought HYBE shares in 2019, there was no certainty regarding the possibility of going public, and both Alpen Route and LB Investment, as well as Vice President Choi, decided to sell their equity for various reasons independently after hearing HYBE’s assurances that there would be no plans for an IPO.
Additionally, HYBE explained that it began the designation of an auditor around August or September 2019 as requested by the existing shareholder Legend Capital. The application for a designated audit is generally interpreted as a preliminary procedure for listing, leading some to argue that HYBE’s preparation for the designation in 2019 indicates there was an actual plan for an IPO.
While opinions in the legal community suggest that proving both the criminal fraud charges and fraudulent trading under the Capital Markets Act against Chairman Bang will be quite challenging, if the prosecution decides to charge Chairman Bang, it seems very likely that both allegations will be applied.
A lawyer from a major law firm stated, ‘In this case, while it is possible that only fraud will be recognized and not fraudulent trading, the probability of the inverse (only recognizing fraudulent trading and not fraud) is very low.’ Generally, criminal fraud charges carry much heavier penalties compared to fraudulent trading under the Capital Markets Act.
◇ ‘Failure to state securities in the registration statement’ does not seem to be an independent crime... ‘unrelated to general investors’
Legal professionals are also pointing out that the time gap between the occurrence of acts that could be construed as ‘fraud (or fraudulent trading)’ in this case and the time when Chairman Bang profited is too large. For fraud or fraudulent trading charges to be established, profits should have been realized shortly after the act of deception; however, in the HYBE case, there is about a one-year gap between the point suspected of fraudulent acts (the time when they allegedly lied to Alpen Route) and the point of realizing profit (the time when Estone PE sold the shares after the IPO and paid 400 billion won to Chairman Bang).
A capital markets specialist lawyer remarked, ‘Moreover, during that period, the status of BTS rose rapidly, making it difficult to argue that HYBE intended for this.’ Calculating the profit amount is also a complicated issue. This lawyer added, ‘It is unreasonable to consider the difference in stock value one year later (post-IPO) from what Estone PE paid for shares from Alpen Route as ‘the amount of profit resulting from criminal acts.’
Meanwhile, it appears the SFC did not view HYBE’s failure to state the revenue-sharing agreement and put option details in the securities registration statement as an independent criminal act. They likely deemed it difficult to charge them with a violation of the Capital Markets Act for not including the securities registration.
The revenue-sharing agreement with Chairman Bang has two scenarios. One is the case if the IPO does not happen. If that were the case, Chairman Bang promised to take responsibility for acquiring the old shares. Since this has no relation to general investors, it is difficult to consider it as a violation of the Capital Markets Act. The second scenario is if the IPO occurs; however, legal experts argue that this information does not influence general investors in deciding whether to buy HYBE shares.