As Chair Bang Si-hyuk stands at the brink of arrest, HYBE, the No. 1 entertainment corporations in Korea, faces its biggest crisis.
With police requesting an arrest warrant for Chair Bang, the ball is now in prosecutors' court, and legal interpretations over whether a warrant will be sought are split. If Bang is actually detained, concerns are emerging that an "owner risk" from a management vacuum could materialize. In particular, expectations for HYBE's high growth have been rising on the back of a recent BTS comeback, raising the possibility that this issue could become a variable for future business developments.
The Seoul Metropolitan Police Agency's Financial Crime Investigation Unit on the 21st requested an arrest warrant from the Seoul Southern District Prosecutors' Office for Chair Bang on charges of fraudulent unfair transaction. It comes about one year and four months after the investigation began. Bang is suspected of reaping about 190 billion won in unjust gains by explaining, during the process of buying shares from existing institutional investors before HYBE's 2019 listing, as if the listing plan would be delayed or would not happen.
Prosecutors are currently reviewing whether to seek a warrant based on the police request. They will decide after comprehensively considering the degree to which the crime is substantiated, along with flight risk and the possibility of evidence destruction. If they judge that the necessity for an arrest warrant has not been sufficiently demonstrated, they may request supplementary investigation or return the warrant request.
In legal circles, there is a view that it will not be easy to reach the point of an arrest warrant actually being issued. The reasoning is that the risk of evidence destruction is not great, given that police conducted a lengthy investigation, questioning him five times and executing at least two searches and seizures to secure related materials. It is also noted that Bang returned to Korea during an overseas schedule to comply with questioning, showing cooperation with the probe.
Bang's side fully denies the allegations. They said that at the time of the Oct. 2020 listing they complied with relevant laws, that they prioritized attracting overseas investment such as from SoftBank Vision Fund, and that a listing, which carried significant uncertainty, was a "Plan B" in case the investment fell through. The overseas investment fell apart due to a valuation gap stemming from HYBE's dependence on BTS IP and the risk of military enlistment.
Easton PE, which police suspect to be a fund linked to Bang's side, is known to have attempted to sell existing shares before the listing. In mid-2020, about three to four months ahead of the listing, it pursued selling a majority of its equity to Tencent, and the investment memorandum (IM) at the time valued HYBE at about 2.3 trillion won. That fell far short of the company's targeted listing valuation of 4 trillion won, and there was reportedly an internal policy to withdraw the listing if the target valuation could not be reached.
Still, the possibility cannot be ruled out that prosecutors will move to seek a warrant. Given the nature of the fraudulent unfair transaction charge, whether investors were deceived and whether there was intent are key issues, and if prosecutors judge that the elements of the crime are sufficiently substantiated, they could raise the need to secure custody. In particular, considering the scale of the case and its impact on the capital market, they may emphasize the seriousness of the matter.
Even if prosecutors recognize the need for detention and request a warrant, the final decision rests with the court. Through a substantive warrant review, the court will again examine whether grounds for detention—such as flight risk and the possibility of evidence destruction—are sufficient.
A legal industry source said, "The investigation into Chair Bang Si-hyuk could enter a new phase as prosecutors take another close look at it," adding, "The outcome could diverge as the matter proceeds to a court decision."