http://2paradise.us/bo/bbs/board.php?bo_table=lawsuit&wr_id=97

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1> The parts enclosed in parenthesis are words or information directly referenced by the lawyer. I tried to avoid using them as much as possible, but used them where it’s necessary. Those are info previously mentioned by the lawyers but omitted in this transcript, or info not included while transcribing conversation into writing.

2> The parts written in light gray are my personal opinion.

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This session is a parallel session handling two lawsuits, and today, SM is assigned as the plaintiff.

The law firm JipyungJiSung and Yulchon (accounting) are defending SM, and CJS are defended by the law firm Sejong.

Started the session and given chances to state new opinions regarding last session.

3: We request to get an interlocutory judgment quickly, separate from the injunction judgment, so the 3 can work freely. SM’s influence in the entertainment industry is strong, and because of direct and indirect restrictions, the 3’s domestic entertainment activities and appearances in broadcasting are impossible. The 3’s domestic activities are halted because many entertainment producers actually think the contract is valid because of the lack of judgment.

SM: First, where are the evidences that SM interfered directly or indirectly with JYJ’s activities? An interlocutory judgment is not necessary. These two subjects are like two sides of the coin, and aside from determining the validity/invalidity of the contract; the damage suits are closely related to them. It is not necessary to provide separate evidences for the two cases, and the verdict must be given all at once after examining the whole situation as the trials are proceeding as a parallel case.

Today’s trial mostly consisted of the witness Yoon Sunghee’s Q&A session.

Yoon Sung Hee is the head manager of the accounting support team of S.M. Entertainment (hereinafter SM), and she handled accounting of the entertainers under SM.

She was assigned to TVXQ since 2008(?) (She entered SM around 2008 according to my memory)



[SM's Examination of the witness]

Q) What is the reason the revenue is settled every 6 months?

- Entertainers generate income inconsistently depending on the level of activities; therefore, monthly accounting settlement is meaningless.

Q) Are there cases where accounting is settled monthly?

- Some Actors/Actresses and entertainers that does not work overseas sometimes settle accounts at the end of every month.  Especially if (the entertainer) pays for all the operating costs, you only need to distribute the profit with the company, so in that case accounting is done monthly.

Q) Any complaints from the entertainers about 6-month term settlement?

- No. The 3 didn’t have any (complaints).
- The meetings for the account settlement held periodically were attended by the entertainers, parents, for minor entertainers surely the parents, finance director of SM, accounting officer Yoon Sung Hee etc, and the Contract terms, comparing revenue and expenses, and advances were gone over on the spot. Also, the entertainer’s signature is obtained after the verification process.

- SM is a company listed on Kosdaq and audited regularly by outside agency, which includes account settlement of the entertainers.

Q) There is a claim that 100% of TVXQ’s operating costs are paid by the members, is it true?

-No, that never happened. All the operating expenses are either shared half & half between the entertainers and the company or the company pays 100%.

Q) When do they get an advance?

- They get an advance for personal reasons not related to the entertainment activities.

Q) In case of the 3?

- Tax, Insurance, Education, Housing purchase etc.
- The 3 got the advance frequently.

Q) The amount of the 3’s advances in 2009  ? Park Yuchun: 490 million/ Kim Junsu: 470 Million/ Kim Jaejoong: 220 million ? totals about 1.2 billion, does the company gives advance every time it was requested?

- The rule is not set that way, but most requests are granted to keep a good relationship with the celebrities.
    
Q) When large amounts like 100 ? 200 millions are requested, how do you finance the funds? Are those always prepared in advance?

- No they're not, so sometimes it is difficult.

Q) Doesn’t this big advance amount become issues during audits?

- Sometimes it does become a problem. Advance is a type of loan, and interest needs to be collected. For regular employees, they pay interest for the advance they received, but for the singers, even though the amount is comparably much larger, we pay them as advanced payment, so we don’t collect interests, and it does get noticed during every audit.

Q) Did the 3 get an advance again in 2010? If they did, what was the purpose?

- Yes. It was paid for the health insurance, citation for the personal vehicle and etc., so the company took care of it at the time.



[Cross-examination from the 3’s side]

Q) During the accounting settlement meeting, were the entertainers ever attended the meeting with an expert or an accountant?

- No. I don’t think it’s necessary because we get audited from outside agency separately.

Q) SM employees prepare all the settlement documents, and if the entertainer requests to review all the details, are they allowed to see them?

- Yes they are.

Q) According to the accounting data, during the activities for the 4th album Mirotic, most of broadcasting appearances and small concerts were treated as promotional fees and the members were not paid?

- Promotional fees are not included in the settlement. As for the events, the events that have high appearance fees are included in the settlement.
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Q) Our side doesn’t even know the amount of the member’s broadcasting appearance fees. Is there a reason for not disclosing the data despite the request for disclosure?

- We will disclose it.

Q) According to the 3, events like fan autograph sessions have appearance fees of 5 million?

- Fan autograph sessions do not have appearance fees; therefore, it is not considered for the settlement.

Q) Preparation costs for TV appearances, for example, dance practice costs, how are they calculated?

- Practice costs for promotional appearance where there are no appearance fees are paid by SM, but the costs for the events or broadcasts with appearance fees are shared between SM and the members.

Q) Albums released in Japan that are imported to Korea, don’t they apply as album sales income?

- Licensed Japanese albums are applied as Royalty.

Q) Those are albums like any other albums, so 10% of the album sales need to be paid, does it not?

- Domestic albums are direct production of SM, but albums released in Japan are not sold directly by SM. The album sales in Japan are paid as loyalties according to the contract.

Q) The 4th album Mirotic sold about 460,000 and SM accounting team forecasted the sales to be 480,000 and paid them accordingly. But actually, it sold about 500,000 in total. For what reason was it forecasted as 480,000? Could it be because of the clause that additional payment of 50 million KRW once the sale exceeds 500,000? In other words, is it done to avoid paying 50 million KRW?

- The accounting is settled after the album was sold for 2-3 months and adding 20,000 sales for future sales. Therefore, 480,000 sales is calculated by adding estimated 10,000 plus some thousands randomly just for the convenience of calculation. If more than the estimated numbers are sold at later times, additional amount is paid. We handle other entertainers are like this too.
Also, payment of 50 million KRW cannot be made because the 3 did not participate in the production of the subsequent album.

Q) Production cost of albums is paid 100% by SM, what are those?

- Album covers, recording, song loyalties, choreography, music video production etc.

Q) But according to the accounting, music video production, new songs choreography, showcase costs are listed as members’ cost, why is that?

- Costs submitted from the production department are applied as production cost, and the costs submitted from the activity management department are applied as cost of activities.
Management department probably determined music videos are cost of activities for the broadcasting and submitted accordingly, so we settled accounting based on those.

Q) In addition to the food expenses, staffs and bodyguards working together, housing maintenance expenses, and even expenses to hire maids are included as the members’ expenses, aren’t they supposed to be paid 100% by the company?

- According to the contract, those costs are shared as the cost of operation.

Q) 70% of the revenue earned in Japan minus taxes are paid to the members, but the income tax paid in Japan are returned after getting deduction in Korea, then those deductions should be considered as income, and isn’t 70% of that need to be paid to the members?

- When the company generates profit, it needs to pay the income tax again besides the reduction. In case of the revenue, the tax needs to be deducted in Korea just like in Japan, but we’re not paying in Korea because it was already paid in Japan, so that part cannot be considered as profit.

Q) The witness said that it’s natural for the members to get paid small amount because of the advance they took out, but when you look at the details of the advance Park Yuchun took out in 2008 for the amount of 220million, most of them are tax, health insurance and vehicle tax, isn’t it just advanced payment of the taxes that the individual must pay?

# At this point the judge said, “Do not ask for a judgment.”

3’s lawyer: “Oh, then I’ll retract this.”

(I don’t know what the lawyer is trying to prove… the company must pay for the individual 's tax?;;)

Q) From the information about the advance Yuchun took in 2008 besides the taxes, there was fund for security deposit of 200 million KRF for housing, isn’t it making the member pay for the lodging? ( In Korea, there’s a method of renting a place with a lump sum fund as a deposit without monthly payments. The landlord basically gets payment off the interest)

- No, that’s not for the lodging, but it was for funding Park Yuchon’s own private house.



[SM’s rebuttal]

Q) The three never joined the account settlement meetings with a legal expert or an accountant, did the company ever denied an accountant joining the meeting?

- No. The 3 never requested it.

Q) Did the company ever prevent it?

- No.

Q) In Album/Royalty clauses, the distribution rates for the album, original recording(?), and loyalties are different. Previously, you said the album gets released in many different formats, so depending on the production and distribution, are different profit rates applied for the artists’ royalty and album sales?

- Yes

Q) According to the exclusive contract, when albums sales of more than 500,000 are achieved, is 50 million KRW paid when the next album is released?

- Yes

Q) Is there an album released where the 3 participated after the 4th album Mirotic?

- There is not.

Q) The condition for the payment was not met?

- Yes (This answer was erased from the record by the judge because he determined that it’s not the witness’ responsibility)


Q) When settling accounts with production/activity costs, it is done with what’s submitted from production department and management department, how does accounting team distinguish them?

A) Each department has separate expense forms. The colors of forms are different, so that’s how we identify them.

Q) Food, hiring overseas bodyguard, lodging management, and maid expenses are shared (between members and company) as cost of operation according to the exclusive contract, is it correct?

-Yes

Q) But even though it’s specified that way on paper, but in reality, the company paid for everything according to the final expense report generated during account settlement. Is that information correct?

- Yes.

Q) Does overseas royalty applies only in Japan?

- No. Japan, China, and Southeast Asia etc. it applies to all the revenues generated overseas.

Q) It was said the overseas account settlement gets delayed by the quarters or a half a year, does that mean that significant portion of the 2008 overseas activities profit are related to the activities done in 2006 and 2007?

-    Yes

(End of questioning of the witness)

# Important points of today’s trial

- Judge said, “First Kim Jaejoong and others, TVXQ that side…(brief silence).. It’s kind of awkward to address them as TVXQ”

- 3 took out 1.2 billion advances just in 2009
- In addition, there are advances taken out in 2008 and 2010 (vehicle citation etc.)

- During the accounting settlement meetings, the entertainer can ask for detailed documents, and allowed to bring legal experts or accountants, but the 3 never requested it.

- The profit for the year 2009 and after is not claimed yet

- 3’s lawyer who specialize in entertainment management jyj->jyp continue to “chunsangjeehee” -> “chunsangjeehae”
(Note: During the previous trial session, JYJ's lawyer addressed JYJ as JYP, and during this one, they got the name of the Grace wrong)
# For additional witness, SM requested TVXQ’s former manager and Nam Soyoung, the director of SM Japan

- Director Nam Soyoung is accepted as a witness. She’ll probably take a stand as a witness on the next trial. TVXQ’s former manager will be requested in writing.

The 3’s side doesn’t seem to have requested (any witness) yet.

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Source: http://2paradise.us
Translated by: Precious @ http://truetvxq.blogspot.com
Do not modify the content when using this post. Please note proper credits.

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