On July 29, it was reported that the Seoul Regional Tax Office announced the launch of a special audit into HYBE.
According to the latest report, the '4th Bureau of Investigation' at the Seoul Regional Tax Office dispatched investigators without prior notice to HYBE’s headquarters in Yongsan, Seoul, on Monday morning, on July 28.
Following the reports, Korean netizens have focused their attention on the possible reasons HYBE has been subject to a special audit. One netizen compiled the articles from the past three months and outlined the reasons.
1. Bang Si Hyuk's 36.5 billion KRW (26.3 million USD) U.S. mansion was omitted from HYBE's assets.
The Fair Trade Commission is expected to continue investigating that HYBE Chairman Bang Si Hyuk allegedly did not include his U.S. luxury home in HYBE’s assets.
2. ADOR-HYBE IM's fee jumped from 500 million KRW (358,800 USD) to 4.1 billion KRW (2.95 million USD) after Min Hee Jin left.
HYBE IM recognized 4.1 billion KRW in sales through the ADOR-Krafton collaboration. According to the investment banking (IB) industry on the 22nd, the 4.1 billion KRW in internal sales recently disclosed by HYBE IM came from ADOR's collaboration with Krafton on NewJeans-related items. The collaboration, first proposed by Krafton, was formally launched last June after HYBE IM connected ADOR with Krafton. However, this was omitted in HYBE's May 21 forecast disclosure of internal transactions for the year, and was only added recently in a new disclosure.
A HYBE IM representative explained, "The disclosed revenue was recognized from the collaboration between Battlegrounds and NewJeans. We cannot confirm further details beyond the disclosed content."
3. Massive revenue underreporting: From 2.178 trillion KRW (1.57 billion USD) to just 2.1 billion KRW (1.5 million USD)
HYBE allegedly underreported annual sales by 1,000 times... paid 120 million KRW less in waste charges.
HYBE has come under fire for allegedly drastically underreporting revenue, avoiding about 120 million KRW (86,343 USD) in waste disposal fees, and omitting disclosure of certain affiliates. One omitted affiliate was Ocean Drive Investment, a company founded by former HYBE CEO Park Ji Won. Although the company became a HYBE affiliate immediately after its establishment on September 29, 2021, HYBE failed to disclose this until June 18 of this year, when it filed its group status disclosure.
4. Former CEO Park Ji Won's 100%-owned affiliate was not disclosed
Park Ji Won's company, Ocean Drive Investment, was missing from business reports... Financial Supervisory Service says HYBE responded, "We weren't aware of the disclosure standard."
HYBE is already embroiled in controversy for underreporting sales and dodging 120 million KRW in waste charges. The nondisclosure of Ocean Drive Investment, a firm wholly owned by former CEO Park Ji Won, added further fuel. Despite being an affiliate since its founding in 2021, HYBE only disclosed its existence in June of this year.
5. "Tuition Fees" Paid Between Affiliates (Internal Transactions)
All domestic labels under HYBE, except Big Hit Music, pay HYBE fees for music distribution, services, and other costs, functioning as a kind of “tuition fee” for artist training.
ADOR, home to NewJeans (debuted 2021), paid 15.7 billion KRW (11.3 million USD) last year, more than five times HYBE’s recognized internal revenue from them (3.1 billion KRW (2.23 million USD)). Source Music, which manages LE SSERAFIM (debuted 2022), paid 11 billion KRW — about three times its recognized internal revenue (3.5 billion KRW (2.52 million USD)).
Today's article update:
A National Tax Service (NTS) official stated, “We cannot disclose specific details of the tax investigation. We ask for your understanding.”
Another NTS official explained, “Through this special, unscheduled tax probe, we won’t just focus on unfair trading practices by major shareholders and executives. We are likely to conduct a wide-ranging investigation into possible tax evasion related to overseas entities in the U.S., Japan, and Southeast Asia (such as offshore tax evasion and transfer pricing manipulation), the appropriateness of tax treatment for affiliated artists, and the reality of internal transactions among affiliates.”
The NTS announced today that it will launch a large-scale tax probe into 27 companies linked to stock price manipulation and other irregularities. HYBE is reportedly among the 27. The NTS estimated that the total amount of suspected tax evasion across these firms could reach 1 trillion KRW (719 million USD), with a substantial portion believed to be linked to HYBE.
Netizen Reaction:
Korean netizens are shocked by HYBE's alleged corruption that is being uncovered, and the latest news on the special tax audit. They commented:
"HYBE should just collapse and shut down…"
"At this level, they could be delisted for accounting fraud."
"What a garbage company. How can anyone trust a company like this? NewJeans, please escape."
"Please just go bankrupt."
"They really did every dirty trick possible, damn."
"Please investigate thoroughly."
"They really did everything possible."
"This is record-breaking self-destruction."
"How does a stock company break the law as easily as breathing? At this level, isn’t it likely they stole from not only NewJeans but other idols too? Then their settlements would have been reduced. Crazy company — please investigate thoroughly."
"That company has too many issues. I hope they punish them properly."
"What made them so reckless? Please investigate thoroughly in every direction."
"Hoping Bang Si Hyuk gets jail time."
"They need a special prosecutor for these b****ds."
"The accountants here aren’t idiots. That’s definitely intentional."
"How did #3 even happen? Did they omit 000? Did they think that could be hidden? Crazy. Investigate properly."
"Damn, they’re really screwed."
"Unbelievable."
"What do they think the law is? A harmful company that cheats stocks and taxes — strip them bare and throw them in."
"HYBE deserves a massive tax bomb. Retrieve the 1.2 trillion they scammed, fine them heavily, and delist them."
"This isn't an entertainment company. It's a criminal organization."
SEE ALSO: HYBE chairman Bang Si Hyuk appears for police questioning over alleged fraudulent trading
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