Hello, this is attorney Kim Kwang-sik of Cheongchul Law Firm.

On September 3, 2026, the Financial Crime Investigation Unit of the Seoul Metropolitan Police Agency's Metropolitan Investigation Division referred five individuals, including HYBE Board Chairman Bang Si-hyuk, former and current HYBE executives, and officials of related private equity funds, to the Seoul Southern District Prosecutors' Office without detention on charges including "fraudulent unfair trading" under the Financial Investment Services and Capital Markets Act (자본시장법). According to the police, while preparing the initial public offering (IPO) of Big Hit Entertainment (now HYBE) in 2019, the suspects allegedly told existing shareholders that there were no listing plans, thereby inducing them to sell their shares, and the private equity funds that acquired those shares realized gains after the listing, resulting in unjust gains totaling approximately KRW 263.1 billion. The police applied for a pre-indictment preservation order for forfeiture covering the entire amount, and the court granted it.

The referral came roughly 20 months after the investigation began (one year and nine months counting from the preliminary inquiry), and the case saw its share of twists, including the dismissal of an arrest warrant. The Seoul Southern District Prosecutors' Office, which has taken over the case, will decide whether to indict after further investigation. As the prosecution and the police reportedly disagree on whether the fraudulent unfair trading charge can be established, there is also a possibility that the prosecution will again request a supplementary investigation. Chairman Bang's side has stated that it will "resolve the allegations transparently."

Taking this case as an occasion, today we will look at what "fraudulent unfair trading" under the Capital Markets Act means and when it is established, what specifically is at issue in this case, and what procedures lie ahead.

[Question]

I saw reports that HYBE Chairman Bang Si-hyuk was referred to the prosecution on suspicion of violating the Capital Markets Act. What is "fraudulent unfair trading" under the Capital Markets Act, and what specifically is at issue in this case?

[Answer]

1. Course of the Case — Referral Without Detention After About 20 Months of Investigation

Chairman Bang and others are suspected of having induced existing shareholders, including venture capital firms, to sell their holdings by telling them there were no listing plans, even while preparing Big Hit Entertainment's IPO in 2019. According to media reports, around that time private equity funds such as STIC Investments, Eastone Equity Partners, and New Main Equity acquired existing shares while the company was still unlisted, and the contracts included a put option guaranteeing "the principal plus 7% per annum if the IPO fails within three years" and a condition that "30% of the sale gains would be distributed to Chairman Bang if the IPO succeeds." When HYBE actually listed in October 2020, those private equity funds sold all of their shares the following year and realized their gains.

The police concluded that Chairman Bang and others obtained unjust gains totaling approximately KRW 263.1 billion in this process, and on September 3, 2026 referred five individuals, including HYBE CEO Lee Jae-sang (then team leader of the Innovation Growth Center), former HYBE CFO Kwon Yong-sang, and two private equity fund officials, to the Seoul Southern District Prosecutors' Office without detention on charges including fraudulent unfair trading under the Capital Markets Act. This came roughly 20 months after the investigation began (one year and nine months from the preliminary inquiry), and the disposition was prolonged, with an arrest warrant dismissed once in the meantime.

▶ Card News Summary Five individuals including Chairman Bang Si-hyuk were referred to prosecutors without detention for violation of the Capital Markets Act (fraudulent unfair trading) after about 20 months of investigation, on suspicion of inducing share sales in connection with the 2019 IPO, based on the police's assessment of KRW 263.1 billion in unjust gains.

2. What Is "Fraudulent Unfair Trading" Under the Capital Markets Act?

Article 178 of the Financial Investment Services and Capital Markets Act (자본시장법 제178조) prohibits, as "unfair trading acts," using unfair means, schemes, or tricks in connection with trading of financial investment instruments; seeking to obtain financial gain by using documents that contain false statements or representations about material matters or that omit statements of material matters; and using false market prices to induce others to misunderstand, among other conduct. The term "fraudulent unfair trading" refers to violations of this provision, which carry among the heaviest statutory penalties of any securities crime.

Article 443 of the Capital Markets Act (자본시장법 제443조) provides that such unfair trading acts are punishable in principle by imprisonment of at least one year or a fine of four to six times the profit gained or loss avoided (Paragraph 1), and imposes aggravated penalties of imprisonment of at least three years where the profit gained or loss avoided is KRW 500 million or more but less than KRW 5 billion, and life imprisonment or imprisonment of at least five years where it is KRW 5 billion or more (Paragraph 2). These aggravated penalties are all provisions of the Capital Markets Act itself. The Act on the Aggravated Punishment of Specific Economic Crimes (특정경제범죄 가중처벌 등에 관한 법률), often mentioned alongside it in practice, applies to separate property crimes such as embezzlement and breach of trust based on the amount of gain, and is not a basis for aggravating unfair trading (violation of Article 178) itself. Given that the unjust gains in this case are reported to reach KRW 263.1 billion, if the case is indicted and the charges are found proven, a severe sentence of life imprisonment or at least five years under Article 443(2) of the Capital Markets Act would be expected. It must be made clear, however, that the case is still at the investigation stage, the alleged facts have not been established, and the presumption of innocence applies at trial.

Meanwhile, this case concerns the over-the-counter sale of existing shares (舊株) while the company was unlisted, so a preliminary question may arise as to whether Article 178 applies to transactions in unlisted shares. The Supreme Court has held that unlisted shares are also "securities" governed by the Capital Markets Act and "financial investment instruments" under Article 178 (Supreme Court Decision 2019Do15510, February 6, 2020), so the prohibition on unfair trading acts may apply to trading in unlisted shares regardless of listing status.

▶ Card News Summary Article 443 of the Capital Markets Act imposes aggravated penalties of at least three years' imprisonment for gains of KRW 500 million to 5 billion, and life imprisonment or at least five years for gains of KRW 5 billion or more (provisions of the Capital Markets Act itself, not the Act on the Aggravated Punishment of Specific Economic Crimes). Article 178 also applies to transactions in unlisted shares (Supreme Court 2019Do15510).

3. Key Issues in This Case — What Is at Issue?

The core of the police's allegation is that Chairman Bang and others, despite knowing that a listing was being pursued, told existing shareholders that there were "no listing plans," thereby causing them to misjudge whether to sell their shares. The issue is whether this can be seen as inducing a misunderstanding in the counterparty through "unfair means" or "false representations" prohibited by Article 178 of the Capital Markets Act. In particular, suspicions have also been raised as to whether the earn-out-type contracts reportedly concluded with the private equity funds that acquired the shares, namely "a put option guaranteeing the principal plus 7% per annum if the IPO fails" and "distribution of 30% of the sale gains to Chairman Bang if the IPO succeeds," were designed in advance on the premise of a listing.

In response, Chairman Bang's side is reportedly arguing that whether to list had not been decided at that point, and that there is no unlawful causal link between the share sales and the subsequent listing. Ultimately, the outcome of this case will depend on whether Chairman Bang and others "definitively" knew of the listing at the time, whether they can be found to have concealed it or given false guidance nonetheless, and whether a causal relationship under the Capital Markets Act is recognized between such conduct and the private equity funds' realization of gains. The disagreement between the prosecution and the police also appears to center on precisely this point, namely the degree of proof of intent and causation required to establish the charge.

In addition, the "KRW 263.1 billion in unjust gains" is, after all, only the police's assessment, and the calculation of this amount of gain is one of the issues expected to be most fiercely contested going forward. The Supreme Court has held that "profit gained from the violation" under Article 443 of the Capital Markets Act means only the portion causally linked to the violation, that price increases attributable to normal market factors or third-party factors are excluded, and that the burden of proof lies with the prosecutor (Supreme Court Decision 2021Do7962, November 25, 2021). Whether the entire sale gains of the private equity funds directly constitute profit gained from Chairman Bang's violation, and in particular how the scope of attribution should be viewed in a structure where 30% of those gains is distributed to him, leaves considerable room for dispute at trial.

▶ Card News Summary The key issues are whether the suspects can be found to have concealed the listing plan despite knowing of it, and whether the private equity fund contracts were designed on the premise of a listing. The "KRW 263.1 billion" figure is also only the police's assessment, and the scope of causation with the violation is likely to be contested at trial.

4. Procedures Ahead — The Prosecution's Decision on Indictment

After reviewing the investigation records, the Seoul Southern District Prosecutors' Office, which has taken over the case, will choose one of three paths: ① indict as is, ② request a supplementary investigation from the police, or ③ issue a non-indictment disposition on the ground that the charges are not established. Since the reform of investigative authority between the prosecution and the police, prosecutors sometimes conduct supplementary investigations themselves, but in a case like this one, where there is disagreement over whether the charge can be established at all, it is being suggested that the prosecution may request a supplementary investigation from the police, further delaying the disposition.

Even if an indictment is filed, the presumption of innocence applies in criminal trials, and the prosecutor must prove beyond reasonable doubt the intent and deception (fraudulent means) required to establish a violation of the Capital Markets Act. The mere fact that guidance about the listing was somewhat inaccurate does not immediately give rise to criminal liability; a conviction requires that the intent to deceive and the causal relationship be supported by concrete evidence. As this case is still at the investigation stage, the prosecution's disposition and the outcome of any trial remain to be seen.

▶ Card News Summary The prosecution will choose among indictment, a request for supplementary investigation, and non-indictment. Even if indicted, under the presumption of innocence the prosecutor must prove intent and causation, and criminal liability has not yet been established.

5. Points for Executives and Investors to Keep in Mind

This case sounds an alarm about how much information executives of an unlisted company must share when communicating with shareholders about major corporate plans such as a listing or M&A. Even at a stage where listing plans have not been finalized, providing guidance contrary to the facts on material matters that could affect existing shareholders' decisions to sell or buy shares may later become an issue as an unfair trading act under the Capital Markets Act. In particular, if executives or major shareholders have entered into undisclosed conditional contracts such as earn-outs or put options with specific investors, they should check in advance that the existence and terms of those contracts are not inconsistent with what they are telling other shareholders.

From the investor's perspective, when acquiring shares in an unlisted company, it is advisable to clearly set out in the contract representations and warranties, and remedies for their breach, to prepare for the risk that the seller's statements regarding a listing may differ from the facts. In addition, where a criminal investigation is prolonged as in this case, an executive's personal criminal risk can turn into governance and reputational risk for the company, so it is also necessary to review the company's compliance system and internal controls.

▶ Card News Summary Executives should bear in mind that providing information contrary to the facts when informing shareholders about major plans such as a listing may become an issue as an unfair trading act; investors should refine representation and warranty clauses; and companies should review their internal controls.

The Bang Si-hyuk case is still at the investigation stage, with the prosecution yet to decide even whether to indict. However, since fraudulent unfair trading under the Capital Markets Act is a serious crime that can carry life imprisonment or long prison terms depending on the amount of gain, the prosecution's disposition and the specific evidentiary relationships that emerge in the process warrant close attention. Whatever the conclusion, this case illustrates how information sharing and contract design at an unlisted company can later lead to criminal and civil risk.

Cheongchul Law Firm provides a wide range of legal advice, from investigation response and defense in securities crime cases such as unfair trading and market manipulation under the Capital Markets Act, criminal risk assessment and compliance advice for corporate executives and employees, and review and design of unlisted share transactions and investment agreements (representations and warranties, earn-out and put option clauses, etc.), to handling related civil and criminal disputes. If you need assistance responding to a securities crime investigation or reviewing related contracts, please feel free to contact us.