The nation’s largest entertainment agency, SM Entertainment, has officially denied allegations that company CEO Lee Soo-man illegally acquired a lavish mansion in Malibu, California, through a joint purchase with a “paper company” in Hong Kong.

KBS 1TV’s “News9” on Tuesday reported that the CEO had purchased the mansion in L.A. County for $4.8 million, which surpasses $3 million, the most that an individual could invest in overseas real state at the time. The report claimed that Lee evaded such regulations by jointly purchasing the mansion with a Hong Kong-based paper company established by SM, which paid for the extra cost.

SM released an official statement denying all accusations of misconduct.

“When producer Lee Soo-man purchased the Malibu real estate together with POLEX Development in April 2007, he reported his overseas real estate acquisition and undertook all the necessary legal procedures,” said SM Entertainment on Thursday.

“Lee has paid all the appropriate dues to the foreign currency and tax authorities in Korea. Reports that Lee personally owns POLEX Development or that it is a ‘paper company’ established by him are simply false,” SM said.

SM Entertainment is currently under investigation for allegedly evading tens of billions of won in taxes. The agency is suspected of having established several paper companies in Hong Kong using famous SM artists’ names to avoid reporting profits earned from overseas performances and activities.

“SM is currently undergoing a tax investigation. We will continue to cooperate with the authorities throughout the investigation and actively work towards quelling any suspicions we face,” the agency said in the statement.

Lee was listed as the richest stockholder in the nation’s entertainment industry late last year, with stocks worth an estimated 187 billion won. The agency is home to many high-profile K-pop acts including Girls’ Generation, TVXQ, Super Junior, SHINee and EXO.

By Sohn Ji-young (jiyoung.sohn@heraldcorp.com)