3 Former Executives Of Loen Entertainment Indicted For Embezzling Royalties While Operating Melon

On September 26, the cyber investigation team at the Seoul Eastern District Prosecutor’s Office revealed that they indicted three former executives of Loen Entertainment for charges of embezzling 18.2 billion won (approximately $15.2 million) worth of royalties while they were in charge of operating music site Melon.

The three former executives are suspected of creating a ghost music label called LS Music, through which they embezzled royalties of 4.1 billion won (approximately $3.4 million). They operated LS Music from January to December 2009, during which they fabricated the data to make it look like Melon users downloaded songs that LS Music held copyrights for. The prosecution revealed that LS Music registered tracks that were no longer protected with copyrights as their own, sending them as a “gift” to users, and adding them to the list of users’ downloaded songs. Furthermore, in order to cover up the crime, they are said to have deleted the data related to LS Music and increased control over access to information about the sales of LS Music.

They are also accused of stealing 14.1 billion won (approximately $11.7 million) by taking advantage of Melon’s changed royalty distribution system in 2010 for three years.

Melon’s royalty distribution system allowed copyright holders to get paid by a ratio of the total number of Melon users. In April 2010, Melon made a change to the system to exclude users who were making regular payments without actually using the service from the total number of its users. However, they are said to have withheld this information from copyright holders, thus embezzling royalties that come from non-users. When copyright holders made inquiries about the royalty distribution system, they even lied by sharing a manual that stated they include non-users in the stated total number of their users.

Regarding the accusations, former Loen Entertainment CEO “Shin” said, “I was aware that they established a ghost label to falsely calculate the royalty distribution, but I did not stop it for the sake of the company’s sales.” When asked about embezzling royalties from Melon’s changed distribution system, Shin said, “I did not think there would be a problem since we notified [copyright holders] about the change in the calculation system.”

The prosecution said, “This is the first time that an unfair royalty distribution system of online music service was revealed. A system needs to be created that ensures transparent royalty distribution.”

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