SM Entertainment co-CEO bashes founder for ruining the company

SM Entertainment’s founder Lee Soo-man has been ruining the K-pop agency with his personal greed, forcing girl group aespa to sing about sustainability in their songs while he evades taxes through a private company he founded overseas, the company’s co-CEO Lee Sung-su argued in a video uploaded on his YouTube channel on Thursday morning.

“We as members of SM Entertainment cannot stand by and watch the company be controlled by Lee Soo-man,” he said in the video. “I wish to explain to you in detail how SM Entertainment came to be in the state it is in now.”

Lee Sung-su, the nephew of Lee Soo-man’s late wife, has been holding the company’s CEO position since 2020. He joined SM Entertainment in 2005 as a part of the artist and repertoire (A&R) team, which is in charge of the music publishing businesses.

According to the CEO, Lee Soo-man founded a Hong Kong-based production company named CT Planning (CTP) Limited in 2019 with the intention of evading taxes and has been seeking to expand that company’s businesses to include all of SM artists’ overseas music activities.

The deal is similar to the one that SM Entertainment had with Like Planning, another private company founded by Lee Soo-man, that had been collecting up to 6 percent of SM’s annual revenue as “production fees,” taking 140 billion won ($109 million) over the course of 20 years.

The amount that CTP has been taking is twice as much as that of Like Planning because CTP takes 6 percent of the revenue before SM Entertainment and overseas distributors divide the income, whereas Like Planning takes 6 percent of the portion that SM Entertainment gets after splitting it with the record distributors, according to the CEO.

SM Entertainment cut ties with Like Planning on Dec. 31 last year, but the deal with CTP still remains.

HYBE, the K-pop agency that created BTS, signed a deal earlier this month to buy 14.8 percent of SM Entertainment’s shares owned by Lee Soo-man and will buy up to 25 percent more in a tender offer to individual shareholders at 120,000 won per share, ultimately aiming for a 40-percent majority stake in the K-pop agency.

“Has HYBE condoned the illegality of Lee Soo-man’s private overseas company CTP, or did they sign the contract without knowing?” CEO Lee said. “If they claim to have signed without knowing, how could they explain having been ignorant of such an important aspect in a 1-trillion-won mega deal to their own shareholders, their staff?”

Lee Sung-su also claimed Lee Soo-man forced artists to publicly announce that he is important to the company and tried to manipulate staff, ordering the establishment of a team to sway an upcoming shareholders’ meeting in his favor with a budget of more than 10 billion won.

The founder ordered staff to downsize SM Entertainment’s first-quarter income reports to “make it seem like SM Entertainment can’t make money without Lee Soo-man,” according to the CEO.

“I am ashamed, I am wretched,” Lee Sung-su said. “We could no longer face the staff at SM, the fans, the artists and every shareholder who invested in this company.”

Lee Sung-su blamed the founder’s stubbornness as having resulted in girl group aespa having to cancel its new album.

The girl group’s new album was scheduled for release on Feb. 20 but was delayed due to Lee Soo-man’s “greed and stubbornness” related to his real estate business and the production behind it, he said.

He argued that the founder’s ultimate ambition is to gain real estate overseas and build casinos where marijuana is legal, using K-pop to propel the business.

“Since last year, Lee Soo-man has been pitching a K-pop festival headed by the idea of ‘planting trees,’” he said. “He suddenly started rooting for sustainability […] And he ordered aespa, whose concept is so well laid-out and clear, to sing a song with the idea of planting trees.”

“The lyrics contained words such as ‘just sustainability, bringing down the temperature, co-habitation, greenism,’ which made aespa members so sad that they filled up with tears,” he continued. “We co-CEOs could not stand by the content that no one agreed with and decided to cancel it for aespa’s sake.”

The CEO finished the video by briefly mentioning a text and phone call he had with Bang Si-hyuk, founder and chairman of HYBE, on Feb. 10, at 3:15 a.m.

HYBE followed with a rebuttal Thursday afternoon, explaining that it had not been notified of CTP and that deals of any form between SM Entertainment and Lee Soo-man will end, should they be true.

“We have made sure that former chief Lee [Soo-man] has no deal with SM [Entertainment] and added a clause in our contract that spells out any deal between the two parties be terminated should they remain,” HYBE said in a statement.

“We will begin an internal review of CTP. If we find that such a problematic contract had been signed, like CEO Lee Sung-su argues, then we will also scrutinize who at SM Entertainment had authorized the contract.”

All four members of the current board, including co-CEOs Lee Sung-su and Tak Young-jun, are set to end on March 27.

HYBE submitted a list of eight candidates for the new board on Thursday on behalf of Lee Soo-man, along with a set of recommendations for the company.

The list did not include HYBE founder and chairman Bang Si-hyuk or Min Hee-jin, the former creative director at SM Entertainment and the producer behind rookie girl group NewJeans, as anticipated by the local press.

The list instead focused on financial and policy experts, highlighting HYBE’s intentions to ensure a maximum level of independence to SM Entertainment, as promised when first signing the purchasing deal.

Three executives from HYBE were named: Jason Lee, president of HYBE America and former chief strategy officer at HYBE who took part in the K-pop agency’s acquisition of Ithaca Holdings; Jung Jin-soo, chief legal officer of HYBE and a licensed lawyer with 25 years of experience in legal affairs and music licensing; and Lee Jin-hwa, leader of the financial planning and analysis department at HYBE.

Two attorneys — Kang Nam-kyu, head attorney and managing partner at Gaon Law Group specializing in taxation, and Park Byung-moo, head attorney and managing partner at BIG Partners with business management expertise — were included.

Hong Soun-man, a professor of public policy at Yonsei University, Lim Dae-woong, the Korea representative of the UN Environment Programme (UNEP) Finance Initiative, and Choi Kyu-dam, a certified public accountant with experience at Deloitte Korea, law firm Kim & Chang and game publisher NCSoft, were also named.

The board member vote will be held in an upcoming shareholders meeting. A date has not been set yet. The 2022 shareholders meeting was held on March 31.

SM Entertainment’s share prices continued a winning streak on Thursday, closing at 131,900 won, 7.6 percent higher than the previous day. It has surpassed the 120,000-won tender offer price set by HYBE.

SM Entertainment will announce its list of recommendations two weeks before the shareholders meeting. A date for the meeting has not been set yet.

BY YOON SO-YEON [yoon.soyeon@joongang.co.kr]