AI startup Upstage issued an official statement on May 20 over controversy surrounding the disposal of shares by Ha Jung-woo (하정우), the Democratic Party candidate in a Busan Buk-gu Gap by-election.

In an explanatory statement, Upstage said it was correcting the facts because it did not want allegations and speculation that differ from the truth to have a negative impact on South Korea's AI industry.

Upstage said Ha served in 2021 as a non-standing adviser limited to AI education. It said Ha, who was working at Naver at the time, performed the advisory role with Naver's formal permission. As compensation, he was granted 10,000 shares at par value, with a mandatory holding period of 6 years, with a minimum term of 3 years and proportional ownership confirmed after the following 3 years.

It also explained the share disposal process. Upstage said 5,556 shares, whose ownership was confirmed for Ha after the mandatory holding period, were placed in a blind trust under the Public Service Ethics Act's requirement for public officials to use a blind trust. It said the remaining 4,444 shares, for which the holding period was not met, were automatically returned under a shareholder agreement to CEO Kim Sung-hoon (김성훈), the largest shareholder, at a par value of 100 won per share.

Upstage also set out its position on where the returned shares belong. It said the contract clearly states that returned shares can be used only for recruiting talent and compensating employees. It said claims that the shares were diverted as private property or used in a parking trade do not hold from the outset.

Earlier, lawyer Hong Jong-gi (홍종기), managing partner at law firm Daham, raised a suspicion of a so-called stock parking arrangement, citing that Ha sold 4,444 shares in Upstage on Aug. 11 last year, shortly after being appointed senior secretary for AI Future Planning at the presidential office, at 100 won per share. In the same month, Upstage's issue price for preferred shares was 293,956 won per share, and common shares were also trading around 70,000 won in the over-the-counter market.

Lawyer Ryu Je-hwa (류제화), managing partner at Yeo-min Joint Law Office, also raised the possibility of a conflict of interest, citing that Upstage was selected on Aug. 4 as a participating company in Dokpa-mo between Ha's appointment as AI senior secretary on June 15 and the share return date of Aug. 11.