HYBE and Chairman Bang Si-hyuk under investigation by South Korea’s financial regulator over ‘secret’ shareholder contracts in IPO (report)

This is proving to be a rough year for HYBE.

For much of 2024, the world’s leading K-pop company has been dealing with a very public dispute involving Min Hee-jin, the former CEO of HYBE’s label ADOR.

Last week, girl group NewJeans, ADOR’s principal act, announced they are leaving the label, apparently the result of Min’s departure earlier this year. HYBE is disputing the group’s unilateral decision, arguing their contract is still in effect.

The company also faced public embarrassment last month when a trove of internal documents was released at a Korean National Assembly committee. The documents included disparaging comments about some HYBE acts, as well as acts from other K-pop agencies.

Now, according to news reports, HYBE’s founder and Chairman, Bang Si-hyuk, is facing an investigation by the Financial Services Supervisor (FSS) – South Korea’s financial regulator – over what the media are calling “secret” contracts with certain shareholders before and during the company’s initial public offering in 2020.

According to news reports, those contracts netted Bang some 400 billion South Korean won (USD $338.8 million, at the average exchange rate for 2020) in the wake of the IPO.

The contracts involved three local private equity funds – STIC Investments, Estone Equity Partners, and New Main Equity. The funds struck a deal with Bang in 2018 – two years before the IPO – to take stakes in HYBE (at the time called Big Hit Entertainment).

The contracts exempted a majority of the funds’ stake from lock-up restrictions that would have prevented them from selling shares immediately after the IPO, according to Business Korea. They also entitled Bang to take 30% of the profits from the PE firms’ stock sales if the IPO was successful. If not, Bang would be required to repurchase the PE firms’ stakes under a put option clause in the contract.

As a result, the funds were able to offload a significant chunk of their stake – 4.99% of HYBE’s outstanding shares – in the days after the IPO. Some news outlets, including Korea Economic Daily – say this was the cause of HYBE’s share price plunge shortly after a rip-roaring IPO day.

On October 15, 2020, HYBE began trading on the Korea Exchange, opening at KRW 270,000 ($229) per share, or double its IPO price of KRW 135,000 ($114.50). The soaring stock price meant Bang’s net worth soared to more than $2 billion, MBW reported at the time.

However, within days, HYBE’s stock price began to…