HYBE Chairman Bang Si-hyuk appeared at the Financial Crime Investigation Unit of the Seoul Metropolitan Police Agency in Mapo District last September to undergo questioning related to alleged violations of the Capital Markets Act (fraudulent unfair trade). Reporter Kwon Do-hyun

Prosecutors are said to have determined that the evidence is insufficient to substantiate the allegation of ‘fraudulent unfair trade’ against HYBE Chairman Bang Si-hyuk and suggested to the police that they change it to a different charge. The police investigation, which has continued for about one year and three months, also appears likely to face difficulties.

According to the Law Times on the 8th, prosecutors conveyed to the police an opinion to the effect that they should consider applying other charges such as fraud.

The Financial Crime Investigation Unit of the Seoul Metropolitan Police Agency applied twice in April to the Seoul Southern District Prosecutors Office for an arrest warrant for Chairman Bang, but both were returned. The reason given for the return was ‘insufficient substantiation of the facts’.

Prosecutors are reported to have conveyed the view that, based solely on the evidence secured by the police, it would be difficult to indict on the fraudulent unfair trade charge.

To apply the fraudulent unfair trade provision under the Capital Markets Act, it must be proven that the capital markets system was distorted and market order was harmed. Issues include whether Chairman Bang used a special purpose company (SPC) to purchase investor shares in order to circumvent the lock-up system that restricts the disposal of shares by major shareholders after an initial public offering (IPO).

After the search and seizure and the arrest warrant were successively returned, the police have not stated a specific position on the direction of the investigation. After the arrest warrant was returned, the National Office of Investigation of the Korean National Police Agency said, “The supplementary investigation items requested by prosecutors are extensive, and we continue to analyze them.”

Chairman Bang is suspected of misleading existing investors during the 2019 initial public offering process of HYBE by saying there was no listing plan or that it was being postponed. He is alleged to have set up a private equity fund (PEF) and an SPC, entered into a side agreement to share stock sale gains with them, and bought the stakes of existing investors.

Police believe that thereafter Bang actually disposed of shares and took about 200 billion won, equivalent to 30% of the sale gains. It is said to be the largest capital markets case identified by the police.

With respect to the fraudulent unfair trade allegation, prosecutors are conducting a concurrent investigation by directing the special judicial police of the Financial Supervisory Service. Independently of the police, they may also reach an investigative conclusion through the special investigators. The Capital Markets Act provides that a person who uses an improper scheme to obtain unlawful gains of at least 5 billion won shall be punished by life imprisonment or imprisonment for not less than five years.