Two former employees and a current staff at HYBE received suspended prison terms and fines after a Seoul court found them guilty of insider trading related to BTS member enlistments.
That’s according to Korea JoongAng Daily, which reported on Tuesday (July 22) that the Seoul Southern District Court handed down the sentences following an investigation into stock sales that occurred before the K-pop giant announced that BTS would pause group activities for mandatory military service.
HYBE officially announced the BTS hiatus on June 15, 2024, saying the members would be focusing on solo projects, but added that they will also remain “active as a group.”
On the day of the announcement, HYBE’s share price fell nearly 25% to 145,000 South Korea Won ($105), wiping around $1.5 billion from the K-pop giant’s market cap value. The sell-off came as BTS is HYBE’s biggest revenue generator, accounting for nearly 90% of the company’s revenues in the first half of 2020.
BTS weren’t only HYBE’s top revenue generator at the time. According to IFPI, they were also the world’s biggest recorded music artists in 2021 and 2020.
“In an entertainment company, an artist’s activities have a significant impact on revenue, so whether they continue or suspend activities is a highly sensitive matter.”
Seoul Southern District Court
With BTS’s absence, HYBE’s operating profit dropped 37.5% YoY to KRW 184.82 billion ($135.55 million) in FY 2024, which it attributed to, among other factors, “BTS‘ temporary break”.
Other acts on the company’s roster include KATSEYE, ENHYPHEN, LE SSERAFIM, Seventeen and TOMORROW X TOGETHER.
Most recently, JoongAng reported that Kim, a 37-year-old employee at HYBE subsidiary Source Music, received a 10-month prison sentence suspended for two years and must pay a fine of KRW 231 million ($168,000).
Two former employees also faced penalties: Lee, 33, formerly of HYBE subsidiary BigHit Music, and a 41-year-old ex-Belift Lab staff received six-month suspended sentences with fines of KRW 51 million ($37,000) and KRW 65 million ($47,000) respectively.
“This offense constitutes a serious crime that undermines the fairness of the capital market and warrants strong social condemnation.”
Seoul Southern District Court
The court ordered confiscation of amounts equal to the losses the employees avoided through their trades, which violated South Korea’s Financial Investment Services and Capital Markets Act, the report said.
The court said in a statement cited by JoongAng: “In an entertainment company, an artist’s activities have a significant impact on revenue, so whether they continue or suspend activities is a highly sensitive matter.”
“This offense constitutes a serious crime that undermines the fairness of the capital market and warrants strong social condemnation.”
The development comes nearly two months after HYBE’s Seoul headquarters were raided by South Korean authorities as part of an investigation into alleged insider trading by a former executive.
That unnamed former exec allegedly made $176,500 by buying shares in rival K-pop company YG Entertainment’s subsidiary YG Plus, after learning that HYBE was planning to invest in the stock, Korea Times reported at the time.
About two weeks ago, HYBE pledged to cooperate fully with authorities as South Korea’s financial regulator reportedly prepares to refer the K-pop giant’s founder and Chairman, Bang Si-hyuk, to prosecutors over allegations related to the company’s 2020 IPO.
The Korea Herald, Korea Times and other local news outlets reported recently that the Securities and Futures Commission’s capital market investigation team voted to refer Chairman Bang to prosecutors,
The Korea Times said referral to the prosecution is the most severe administrative action that financial regulators in Korea can take against an individual suspected of violating the Capital Markets Act.
HYBE said in a statement issued to MBW: “We regret any concern caused by the recent reports related to our IPO process. HYBE is fully cooperating with the local authorities, including the financial regulators and the police, by submitting relevant materials and providing detailed explanations as part of the fact-finding efforts.
HYBE’s shares closed 1.8% lower in Seoul trading on Tuesday (July 23) at KRW 267,500,
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