(2nd LD) SM's co-CEO raises suspicion over founder's offshore tax evasion

(ATTN: UPDATES with reaction by SM founder in paras 7-9; ADDS photo)

SEOUL, Feb. 16 (Yonhap) -- SM Entertainment's management on Thursday raised a suspicion that the company's founder and former chief producer, Lee Soo-man, might have evaded taxes through his overseas private company as the management dispute between the two sides deepened.

The K-pop company's co-CEO Lee Sung-soo claimed in a YouTube video that Lee Soo-man established a Hong Kong-based company named CT Planning Limited in 2019 to evade taxes and has taken 6 percent of SM's business dealings with overseas labels.

"I bet this strange structure of going through the overseas company might be aimed to avoid the surveillance of the National Tax Service," he said. "I wonder if it is a typical case of offshore tax evasion."

He also said that the release of a new album by SM's leading girl group aespa, scheduled for Monday, has been pushed back as the founder insisted lyrics include keywords reflecting his recent interest in tree planting.

"The lyrics contained words such as 'just sustainability,' 'bringing down the temperature even by a degree,' 'co-habitation,' 'Greenism,' with the direct expression 'tree planting' even included in the draft version, which made aespa members so sad that they welled up with tears."

The result of the founder's push was content no one would sympathize with, so the management decided to cancel the release for the band's sake, he claimed.

After the disclosure, Lee Soo-man said, "He is a nephew of my wife, and I've seen him since he was 4 years old," adding he joined the K-pop agency at the age of 19, starting with a job managing fans.

"He is a good boy raised in a family with a pastor father. My heart hurts."

But he did not mention the various suspicions raised in the video.

Hybe, which has announced a plan to acquire a 14.8 percent stake in SM from founder Lee to become its largest shareholder, earlier said it has not been informed about Lee's ownership of CT Planning Limited or the company's business contract with SM.

Even if the claims are true, Hybe said, it can still terminate the contract between the two companies because no business relationship between Lee and SM was a precondition for the contract to take over his stake.

The company said it will also try to find out who in SM approved the problematic deal in that case.

The dispute began in August when activist fund Align Partners Capital Management, which owns about 1 percent stake in SM, raised concerns against the company's governance structure, questioning Lee's role and influence in the company.

He has not held any official position at SM for more than a decade but has reportedly exerted a significant influence in managing and training the company's K-pop artists through his private music production company, Like Planning.

The fund called on SM to terminate business contracts with the production company, arguing the former had paid a significant amount of capital every year in royalties to the latter, damaging shareholder value.

Accepting the demand, SM terminated its contracts with the music production company and announced a reform plan centered on building a multi-production system to cut its ties with the founder.

sshim@yna.co.kr
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