'The Fall of Bodyfriend', What Happened Between the Founder and the Private Equity Fund [Why&Next]

Stonebridge Claims "Han & Brothers Had Ethical Issues"
Han & Brothers Responds "We Were Overthrown... Various Speculations Are Unfair"
Prosecutors Filed Arrest Warrants for Founder and Han & Brothers on 31st Last Month

The shareholder lawsuit at Bodyfriend, which began as a management rights dispute, has intensified as the prosecution proceeded with detention investigations against both parties. On the 31st of last month, the prosecution requested arrest warrants for Han Ju-hee, the largest shareholder of the private equity fund Han & Brothers, which is disputing the management rights of the massage chair company Bodyfriend, and Yang Mo, former CFO (Chief Financial Officer) of Bodyfriend and an associate of Han, on charges including fraud, embezzlement, breach of trust, and violation of the Attorney-at-Law Act. Arrest warrants were also requested for Kang Woong-cheol, the founder and former chairman of Bodyfriend's board, on charges of embezzlement and breach of trust.

Bodyfriend, Founder vs. Largest Shareholder Management Rights Dispute: Why?

Since its founding in 2007, Bodyfriend was managed by former chairman Kang Woong-cheol until the management rights were transferred twice to private equity funds after 2015. In 2015, private equity funds such as VIG Partners acquired a 43% stake, becoming the largest shareholder. In July 2022, BF Heart, a special purpose company (SPC) jointly established by private equity funds Stonebridge Capital and Han & Brothers, purchased a 46.3% stake, acquiring management rights. Kang, who had been involved in management since the founding, remained the second-largest shareholder with a 38.77% stake.

However, Stonebridge and Han & Brothers began to compete for control, with former chairman Kang siding with Stonebridge. This created a confrontation between Kang and Stonebridge versus Han & Brothers. Han & Brothers filed a complaint with the prosecution last year against Kang, accusing him of embezzling 6.2 billion KRW in employee invention compensation and causing damage to the company, as well as misuse of corporate credit cards. Kang’s side counter-sued Han and Yang for allegedly misappropriating company funds, including suspicions of paying for luxury hotel suite stays with corporate credit cards.

Why Did 'Joint Acquirers' Stonebridge Capital and Han & Brothers Split?

A dispute arose during the shareholder contract execution process between Stonebridge and Han & Brothers, who jointly formed the SPC to acquire Bodyfriend’s management rights. A Stonebridge official stated, "There were ethical issues beyond what is generally acceptable on Han & Brothers’ side."

Stonebridge accused Han & Brothers of misappropriating Bodyfriend’s corporate funds and receiving excessive salaries the year after acquiring management rights, filed a police complaint, and persuaded the limited partners (LPs) who funded the acquisition to unanimously strip Han & Brothers of management rights.

Stonebridge raised concerns that Han, who served as Bodyfriend’s chairman, received an annual salary of 499 million KRW from subsidiary M Company from December 2022 to February last year, which was excessive given his level of involvement in subsidiary management, causing company losses. Han also received about 495 million KRW annually from Bodyfriend. Stonebridge suspected that Han split a total salary of about 1 billion KRW between Bodyfriend and the subsidiary to avoid disclosure obligations triggered by salaries exceeding 500 million KRW.

Regarding these suspicions, the earlier police investigation concluded that Han had engaged in appropriate management activities at M Company and it was difficult to definitively say he was overpaid, resulting in no charges. However, Stonebridge and Bodyfriend argued that M Company, still a venture firm without significant sales, setting multi-million KRW salaries constituted breach of trust. They also criticized the investigation as inadequate, noting that the police only questioned the legal team leader once despite needing to request documents from M Company and interview related witnesses.

[Photo by Bodyfriend]

Han & Brothers’ Side Claims GP Contract 15:85... "We Were Couped... Over 37 Lawsuits Ongoing" Expressing Grievance

The prosecution, which reopened the investigation into the case previously closed without charges by the police, is reportedly focusing on Han’s lobbying suspicions (violation of the Attorney-at-Law Act). In April, the prosecution conducted raids on Bodyfriend’s headquarters in Dogok-dong, Gangnam-gu, Seoul, and Han & Brothers’ headquarters in Yeoksam-dong. Last year, lists circulated in political and legal circles alleging that Han had engaged in lobbying, naming members of the National Assembly, former prosecutors general, chief prosecutors, senior judges, and broadcasting executives.

In response, a senior official from Han & Brothers said, "There are many unfounded rumors, and we feel wronged. We have filed a fraud complaint against Stonebridge, and investigations are ongoing. We are also pursuing lawsuits against media outlets that falsely reported Han as a lobbyist."

He added, "During the acquisition of Bodyfriend, the joint GP (general partner) contract for the investment target company promised Stonebridge a 15% stake and Han & Brothers 85%. Han & Brothers obtained a larger share because they played an absolute role in the acquisition process."

He continued, "During a long business trip to the U.S., we were subject to a coup, losing the chairman and GP status. Currently, we are pursuing over 37 civil and criminal lawsuits. We have all the documents, such as executive appointment contracts, to prove our claims, so although it will take time, the truth will be revealed."