Broker Held Not Liable For Promise To Investor

The Financial Supervisory Service has concluded that when an investor entrusted a brokerage firm with money, he became responsible for losses, even though an employee of the brokerage guaranteed the safety of his principal.

A mediation committee of the service held the investor responsible for 70 percent of his loss, 113 million won ($86,636).

The service explained that the investor had experience in stock investments, that he had received monthly transaction statements and knew the state of his account and that he had not pulled his money out when he became aware of the loss.

The brokerage employee was required to make good the remaining 30 percent of the loss. "Though the memorandum of guarantee was useless," a service official said, "the employee actively encouraged the investor to switch from relatively low risk mutual funds to high risk stock investments."

In February 2000, the investor signed a contract with the brokerage employee, who guaranteed the principal of 178 million won, which was invested between April and November 2000. The value of the investment had shrunk by more than 90 percent, to 16.6 million won by November, at which point the investor asked for mediation to have the brokerage cover the loss.

by Huh Kwi-sik