HYBE Chairman Bang Si-hyuk Arrest Warrant Denied Twice in IPO Fraud Probe

South Korean prosecutors and police are split on how to handle the criminal case against Bang Si-hyuk, chairman of HYBE, over alleged violations of the country's capital markets law.

The Financial Crimes Investigation Unit of the Seoul Metropolitan Police Agency filed for an arrest warrant against Bang twice this past April, but the Seoul Southern District Prosecutors' Office rejected both requests. Prosecutors concluded that the evidence gathered by police was not enough to prove fraudulent trading charges in court. They asked police to reframe the case under fraud and other statutes instead, according to reports.

Applying the fraudulent trading charge under South Korea's capital markets law requires proving two things. First, that special purpose companies were used to buy shares as a way to get around lock-up rules for pre-IPO investors. Second, that the scheme harmed the integrity of the capital markets. Prosecutors had already pushed police in this direction. In April last year, they rejected two earlier requests from police for search-and-seizure warrants and asked for the same shift in approach.

Some legal observers say switching to a fraud charge may not make the case any easier to prove. A fraud conviction would require showing a direct link between what Bang told investors and the investors' decision to sell their shares. There is also a gap in time between when the alleged conduct took place and when the profits were made, which complicates any calculation of the damages. Analysts note that changing course now, after police have already questioned Bang five times, could create discrepancies within the existing case file and add pressure to any future warrant request.

Bang is accused of misleading existing investors about HYBE's listing plans during the company's 2019 initial public offering, and of striking side deals with private equity funds and special purpose companies to buy up shares. Police estimate that Bang pocketed roughly 200 billion won in improper gains through the later sale of those shares, an amount equal to about 30 percent of the total sale proceeds. Prosecutors are also running a parallel investigation into the case, directing the special judicial police unit at the Financial Supervisory Service.