SM founder’s suspected offshore tax evasion can never happen, says Hybe CEO

Hybe, the K-pop powerhouse that is trying to become the largest shareholder of its rival SM Entertainment, once again tried to dispel concerns over suspected offshore tax evasion by SM founder Lee Soo-man on Friday, calling it “a scenario that can never occur.”

On Thursday, SM’s co-CEO Lee Sung-soo claimed in a YouTube video that the founder Lee established a Hong Kong-based company in 2019 to evade taxes and has taken 6 percent of SM’s business dealings with overseas labels through the company, amid a deepening management dispute between the two sides.

After the claim was made, Hybe said it has not been informed about Lee’s ownership of the Hong Kong-based company or its business contract with SM.

It also said it can still terminate the contract, even if there is any, because no business relationship between Lee and SM was a precondition for its deal to acquire a stake in the rival company.

Hybe has agreed to acquire a 14.8 percent stake in SM from founder Lee and is offering to buy a further 25 percent of the company from other shareholders.

“What we have heard for the past few days are nothing but things of the past involving Lee and the current management of SM and will not affect the future to be led transparently by Hybe and SM,” Hybe CEO Park Ji-won said in an email sent to all employees of the company on Friday.

Park reassured that the term in its acquisition contract with Lee can effectively block any business deals that it was not aware of.

“The unethical way of management where offshore tax evasion is made through the Hong Kong-based company as alleged by the current SM management is a scenario that can never occur,” he stressed.

SM instantly refuted the claim in a statement.

“CT Planning Limited has sealed contracts directly with overseas labels, not through SM, to hide its true nature,” the K-pop company said, referring to the name of the alleged Hong Kong-based company. “It’s not an issue that Hybe can resolve by terminating the contracts since there were no business dealings with SM.”

Later in the day, Lee Sung-soo announced he will resign as co-CEO next month and will not seek a second term.

“I will resign from the CEO and registered director posts at the general shareholders’ meeting scheduled for March,” Lee said in a YouTube video.

Reiterating his criticism of the SM founder, Lee said he will do his best to thwart Hybe’s takeover attempt, a deal that he says SM employees are opposing.