SM Entertainment, a leading K-pop label that produced many outstanding artists, is suffering from internal conflict due to a legal battle between the founder, Lee Soo Man, and current management. 

On the afternoon of February 8, Lee Soo Man announced that he had submitted an application for a provisional injunction to the Seoul Eastern District Court to ban SM Entertainment's issuance of new shares and convertible bonds through the law firm Hwawoo. Recently, Lee Soo Man's side argued against SM Entertainment issuing 1.23 million new shares and 1.14 million convertible bonds, representing a total share of 9.05%, and taking issue with how Kakao became SM's second-largest shareholder. The law firm said, “this was an illegal act without the consent of the largest shareholder.” 

Lee Soo Man, who was staying abroad, hurriedly returned to Korea the day before the filing of his lawsuit. He arrived in Seoul with a fractured arm and was immediately taken to a hospital in the city.

It is expected that the legal battle between Lee Soo Man and SM Entertainment will be focused around March 6 because March 6 is the date when Kakao can legally take over the shares that SM Entertainment issued on February 7. On this day, Lee Soo Man's side requested the court "to appoint an interrogation date as soon as possible before March 6 and to make a decision to quote a provisional injunction (ban on issuing new shares and convertible bonds)."

According to the music industry and close associates, Lee Soo Man has already expressed that he felt betrayed when all 12 requests of Align Partners, an activist fund (a fund that actively exercises shareholder rights) from January 20, were accepted without his consultation. The main points of the agreement were strengthening the transparency of the board of directors, normalizing related and existing companies, introducing a multi-producing system, and a shareholder return policy. This agreement later became the basis for the SM 3.0 policy, which focuses on 'multi-producing/production,' in which a number of experts will be in charge of producing albums instead of Lee Soo Man, who has stepped down from SM's general producer position.

Align Partners is a minority shareholder in SM Entertainment with a 1% range stake, but the year before last, Align demanded the improvement of the structure in which Lee Soo Man had complete control over album planning after signing a contract with SM Entertainment through his company, Like Planning. Since October of last year, Align has requested board meetings and accounting records, reviewed transaction data of SM-related companies in which Lee Soo Man and especially related people have a stake, and announced a shareholder representative lawsuit earlier this year on the grounds of improving the operation structure.

In this process, the current SM management, including co-CEOs Lee Sung Soo and Tak Young Joon, ended the production contract with Lee Soo Man. After Lee Soo Man's contract was terminated, Align's shareholder representative lawsuit was withdrawn.