SM Entertainment CEO airs suspicions that founder Lee Soo-man attempted offshore tax avoidance

The rift between SM Entertainment and its founder Lee Soo-man has widened further with the release of a video by the K-pop label’s CEO Chris Lee, in which he accuses Lee Soo-man of greed and airs suspicions that he attempted offshore tax avoidance, among several allegations.

Chris Lee, who is also known as Lee Sung-soo and one of two current CEOs at the South Korean label, took to his personal YouTube channel to upload a 30-minute-long announcement regarding the current status of the company on February 16. The video was labelled the first part of a series of videos explaining why SM decided to sever ties with its founder Lee Soo-man (also Chris Lee’s uncle).

In the video, Chris Lee accused Lee Soo-man of pushing SM to make unusual contract arrangements with a company he established overseas in a bid to avoid South Korean taxes.

According to Chris Lee, Lee Soo-man had launched a new business in Hong Kong called CT Planning Limited, which Chris Lee claims is an offshore version of Lee Soo-man’s separate Korea-based consulting business, Like Planning. Like Planning has generated ₩149 billion (£96.1million) in profit from SM Entertainment alone since it launched 22 years ago, Chris Lee claimed.

“Normally, it is customary for SM Entertainment to pay Like Planning its 6 per cent fee from the settled amount that SM Entertainment would receive after distributing profits between the labels. However, Lee Soo-man had ordered that contracts be made with the other labels so that he could take 6 per cent of the revenue before it was distributed,” Chris Lee claimed, as translated by Koreaboo.

Lee Soo-man could have done this, Chris Lee continued to allege, to avoid taxation in Korea. He added, “The contract between SM Entertainment and Like Planning was deemed invalid in both 2014 and 2021 and resulted in SM Entertainment paying back trillions of Korean won in back taxes.”

Elsewhere in the video, Chris Lee also accused Lee Soo-man of having the agency sign a consulting deal with Lee Soo-man to give legitimacy to his actions as well as having artists under the company sign a separate contract with CT Planning for offshore promotions. Chris Lee also alleged that Lee Soo-man had sought ways for the company to deliberately report lower revenue to create the impression that SM would be unable to turn profits without his involvement.

“Even after he stops producing, SM would need to pay Lee Soo-man 6 per cent of revenue sales from artists’ albums for the next 70 years, as well as 3 per cent of management revenue for three years from 2023,” Chris Lee claimed. “That’s approximately ₩80billion [£51.5million]. I was so ashamed to meet SM’s employees, artists, and all of our investors.”

Elsewhere in the video, Chris Lee alleged that Lee Soo-man pushed for sustainability initiatives out of vested interests in real estate and casinos. The SM CEO claimed that Lee Soo-man ordered the injection of environmental messaging and lyrics into SM artists’ music, including that of the girl group aespa. The group were “upset” by the messaging allegedly shoehorned into their music, which was not compatible with their metaverse-related concept. Chris Lee said that SM management decided to scrap the project, delaying the release of aespa’s new music.

Lee Soo-man has yet to respond to the allegations in the video, though he did express his disappointment in Chris Lee to the media. “I’ve watched my late wife’s nephew grow up since he was four,” Lee Soo-man told news outlet JTBC, according to Koreaboo translations. “He’s been with me since he entered SM Entertainment at 19 years of age, working on managing fans. He’s a kind nephew who grew up in a family with his father a pastor. My heart hurts.”

These developments come a week after K-pop company HYBE, which has on its various label rosters artists such as BTS, Tomorrow X Together, SEVENTEEN, NewJeans and more, announced its move to become majority shareholder of SM Entertainment. HYBE had struck a deal with Lee Soo-man to buy 3.5million shares in the company and acquire a 14.8 per cent stake in SM. It has also offered to buy a further 25 per cent stake in SM from minority shareholders.

Shortly after the news was announced, SM executives stated their opposition to any “hostile takeover” of the company, including by HYBE. HYBE’s CEO Park Ji-won has since said that it will “ensure” SM will retain its independence, citing its successful “multi-label system”.

In his video, Chris Lee questioned whether HYBE was aware of Lee Soo-man’s CT Planning Limited. As Yonhap reports, HYBE has responded, saying it was not aware of the Hong Kong-based company nor Lee Soo-man’s business contract with SM.

“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 reportedly said in an email to company employees today (February 17).

Park also reportedly said the alleged offshore tax avoidance and “the unethical way of management” as alleged in the video “is a scenario that can never occur”.

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