Korea’s biggest music-streaming firm Melon is being investigated on suspicions of swindling billions of won in music royalties, Seoul Eastern District Prosecutors’ Office said Monday.

According to officials, its cyber investigation unit raided Kakao M’s headquarters, which housed the music-streaming company’s former operator Loen Entertainment, located in Gangnam-gu, Seoul, on May 27.

Melon is suspected of setting up a paper company for diverting some 5 billion won ($4.23 million) that should have gone to copyright holders between 2009 and 2011, while it was still an SK Telecom subsidiary. SKT sold the streaming service to Kakao in 2013.

At the time, 54 percent of the streaming profit went to music copyright holders, with Melon keeping the remaining. In the process, the streaming service provider seems to have registered a phantom music label called LS Music to siphon off about 10 percent to 20 percent from the copyright holders’ portion of the royalties, the prosecutor’s office said.

Prosecutors are also investigating whether Melon had swindled copyright fees via alternate routes after 2011.

Kakao’s spokesperson Bang Ji-yeon told The Korea Herald that “while the alleged incident took place prior to Kakao’s acquisition (of Melon), as the service’s current operator, it will be fully committed to cooperating with the authorities.”

By Kim Arin (arin@heraldcorp.com)