MBW Posts Statement to HYBE Shareholders on Insider Trading Guilty Verdict Related to BTS ‘Hiatus’
Hello.
Last Thursday (July 24), Music Business Worldwide posted an accurate story covering three individuals being sentenced for insider trading in South Korea.
The article in question cited and credited a report from Korea JoongAng Daily – the English edition of the South Korean national daily newspaper, JoongAng Ilbo.
It stated that three people affiliated with HYBE – reported by JoongAng Daily as two ex-employees plus one employee of a subsidiary – had been convicted of insider trading in Korea.
The trio was found to have benefited from privileged knowledge regarding BTS’s official confirmation of their “hiatus” — due to military enlistment — in June 2022.
The correction that wasn’t a correction
After publishing our story, late on Thursday GMT (July 24), MBW was contacted by Los Angeles-based Tag PR, aka The Agency Group PR LLC, with an urgent correction request.
Tag PR stated (bolding and underlining as received): “Clarification: None of the three registered officers were former HYBE employees. Only one individual was known to be an acquaintance of Chairman Bang Si-Hyuk.“
Relevant detail: The Agency Group LLC was majority-acquired by HYBE last year, with the American arm of HYBE — then run by Scooter Braun — reportedly buying a 51% stake in the PR company.
After being contacted by HYBE-owned Tag PR, MBW duly updated our story with its statement; we noted that HYBE (via its majority-owned subsidiary) had “strongly denied” that any ex-employees had been sentenced in the insider trading conviction.
Then things… took a turn.
Early on Friday morning (July 25), HYBE’s Seoul-based global head of communications, Rachel Um, contacted us via email to issue a correction… to the correction MBW received from Tag PR the previous day.
This email from HYBE HQ read: “Regarding [MBW’s] piece from yesterday, it’s confirmed that the three individuals addressed were all former HYBE employees as they were charged with insider trading. They had all left HYBE by then. While they did work at HYBE, they had no personal connections with Chairman Bang.”
HYBE blamed “human error” for Tag PR’s erroneous request to correct MBW’s article with false information.
So, to reiterate:
The three individuals sentenced for insider trading did all, at some point, actually work for HYBE (as MBW reported in the first place).
HYBE says, officially, none of them were acquaintances of Chairman Bang (which MBW never suggested in the first place).
The relevance of accuracy in this matter, especially in terms of the individuals’ connection (or lack of) to HYBE founder Chairman Bang Si-Hyuk, will be of significant importance to HYBE shareholders.
Bang Si-Hyuk and three separate HYBE employees were recently referred to Korean prosecutors in a different investigation of alleged “unfair trading”, connected to the company’s 2020 IPO. (Again: this investigation is unrelated to the BTS insider trading case; the three employees in each matter differ.)
HYBE says it is “fully cooperating with local authorities, including the financial regulators and the police,” in the Chairman Bang prosecutorial investigation.
MBW is aware we are read closely by HYBE investors and analysts, and thought it best to be as clear as possible on last week’s events. Hence this letter.
You can read our (twice updated) coverage on the BTS insider trading conviction here.
Three individuals who previously worked for HYBE have received suspended prison terms and fines after a Seoul court found them guilty of insider trading related to BTS member enlistments.
UPDATE Korea JoongAng Daily, 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.
Late yesterday (July 24), HYBE – via its fully-owned US agency, Tag PR – contacted MBW to strongly deny that any of the trio were former employees of the company. One of the individuals, HYBE said, was known to be an acquaintance of HYBE founder, Bang Si-hyuk.
Today (July 25), HYBE’s central communications team in Korea has once again contacted us with a different version of events.
HYBE spokesperson Rachel Um said in an email: “It’s confirmed that the three individuals addressed were all former HYBE employees as they were charged with insider trading. They had all left HYBE by then. While they did work at HYBE, they had no personal connections with Chairman Bang.”
Um blamed “human error” for the initial correction request from Tag PR.
JoongAng earlier reported that amongst the trio of insider traders was Kim, a 37-year-old employee at HYBE subsidiary Source Music, who received a 10-month prison sentence suspended for two years and must pay a fine of KRW 231 million ($168,000).
It also named Lee, 33, formerly of HYBE subsidiary BigHit Music, and a 41-year-old ex-Belift Lab staff member. They each received six-month suspended sentences with fines of KRW 51 million ($37,000) and KRW 65 million ($47,000) respectively.
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, ENHYPEN, LE SSERAFIM, Seventeen and TOMORROW X TOGETHER.
“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.