Hybe’s IPO Drama: Chairman Bang Si-hyuk’s Alleged Fraud Shakes Investor Confidence

South Korea’s financial regulators have referred Hybe Chairman Bang Si-hyuk to the prosecution on charges of fraudulent trading, accusing him of misleading shareholders during the company’s initial public offering and profiting nearly 400 billion KRW (300 million USD) in the process.

This marks the first instance under the Lee Jae Myung administration where authorities have taken such stringent disciplinary action against the head of a major conglomerate. Regulators reportedly extended Bang an unusual opportunity to appear in person and provide an explanation, but he declined to attend.

The Financial Services Commission’s Securities and Futures Commission convened a regular meeting on Wednesday. During this meeting, they announced the referral of Bang and former Hybe executives to prosecutors on suspicion of violating the Capital Markets Act, particularly its prohibition on unfair trading practices.

Referring a case to prosecutors is the most severe measure financial regulators can take against an individual accused of law violations, beyond administrative penalties. The Capital Markets Act stipulates that individuals who gain or avoid losses exceeding 5 billion KRW (3.75 million USD) through unfair trading may face imprisonment ranging from five years to life.

“The suspects circumvented the lock-up period intended to prevent major shareholders from selling shares immediately after listing, and dumped their shares on the market for profit. The nature of this violation is particularly egregious,” a financial authority official told local media. “The subsequent plunge in stock price caused significant harm to ordinary retail investors.”

Hybe announced its commitment to actively work towards clarifying the allegations and restoring market trust.

“We find it regrettable that the financial regulators did not accept the major shareholder’s explanation during the Financial Supervisory Service’s investigation. He clearly stated that he did not pursue personal gains based on the company’s IPO,” Hybe said in a statement to The Korea Herald on Thursday.

“Nonetheless, we respect the decision and will spare no effort in the upcoming investigation to actively address the allegations and regain the trust of the market and our stakeholders,” the company added.

According to authorities, Bang allegedly misled early investors into selling their shares by falsely claiming that Hybe’s IPO prospects in 2019 were unfavorable. He is also suspected of entering into a private agreement with a private equity fund that had acquired a substantial stake in the company. This agreement reportedly pledged to share 30 percent of any future gains from selling his shares, ultimately resulting in a profit of nearly 400 billion KRW (300 million USD).

In response to such misconduct, the Korea Exchange revised its IPO due diligence checklist late last year. The revisions include new requirements for underwriters to scrutinize contracts between shareholders and assess potential risks to investor protection.