Investigators are currently scrutinizing South Korea's largest music streaming site Melon after it was alleged to have embezzled millions of dollars in royalties. Reports stated that the firm has stolen huge chunks of royalty fees from copyright holders through a ghost music company called LS Music, which was established around 2009 to 2011.
"The raid was to secure hard evidence backing allegations raised against the company. I can't give further details because the investigation is under way," an investigator said.
The prosecution reportedly started the investigations inside Melon's head office, which is situated in Samsung, last May 27. Kakao M, presently the owner of the streaming service, then released a statement regarding the investigation. It is disclosed that not a single member of Kakao M has been informed about the details of the search.
Additionally, Kakao M was not yet the owner of the firm when the supposed fraudulent occurrences took place. Loen Entertainment was the previous owner of the music site. It is revealed that in 2011, the royalties distribution system states that 46% goes to the profits of Melon, whilst 54% goes to the copyright holders.
However, reports said that Melon embezzled approximately $845,305 from the copyright holders by adding LS Music as one of the distribution system recipients, and that the alleged ghost company received about 10% from the total profits. LS Music reportedly sent classical music records to users as a "gift," but with vague copyright holders, and then receiving the royalty fee thereafter.
Further, Melon continued to steal royalties from copyright holders in different ways not just in 2011. Once the investigation goes farther back down to 2009, which was way before the company was purchased to become a private equity back in 2013, then it is highly probable that Melon may have embezzled tens of billions of won.
"It is true that the police performed a search and seizure at [the office] last month. However, the investigation is happening due to a problem that occurred before Kakao's acquisition of Melon in 2016. We do not know the details of the investigation," Kakao M said in its official statement.
"While the alleged incident took place prior to Kakao's acquisition (of Melon), as the service's current operator, it will be fully committed to cooperating with the authorities," Kakao's spokesperson Bang Ji-yeon said.
Suspicious distribution of royalties has been brought up long ago and has been incessantly raised. However, this is the first time ever that authorities conducted an investigation.
