[EDITORIALS]How to get money backFormer executives are being called to courtrooms and ordered to pay, literally, for their responsibility in bringing on the financial crisis of five years ago. The Korea Deposit Insurance Corp. recently announced civil suits against the auditors of Kohap for the failure to catch accounting fraud that led to 7.8 billion won ($6.5 million) in losses of public funds. Earlier, the deposit insurer directed six banks to bring damage suits against former chief executives for about 1 trillion won in losses.
The deposit insurer's moves are perhaps inevitable in the aftermath of the 156 trillion won in funds needed to bail out troubled financial firms and the difficulties experienced by the public over the past five years. The problem is, however, that the suits may not be as effective as the justification is. The executives being sued are outraged, and there is a general agreement that the possibility of winning the cases and actually collecting damages is low. Considering that the government exercised wide influence over the financial sector at the time, it would be difficult to prove that the executives were personally responsible for the defaulted loans.
The same can be said about the accounting firms. There are experts who question the legitimacy of holding accountants solely responsible for the failure to uncover management fraud at a time when such irregular practices were nearly the norm. It would also appear inevitable that such actions would result in the side effect of banks being discouraged from approving new loans or the accounting profession contracting rapidly. There is also the cynical view that the deposit insurer's actions may be a way to shield itself from questions of responsibility as it awaits a National Assembly examination of the management of bailout funds. What is needed is to be selective in the winnable lawsuits while ensuring that the side effects are minimized.
In the longer run, the legal actions should be taken as an opportunity to ensure reform in banks' credit practices and transparency in corporate accounting. There must also be a wisdom and determination to learn from the crisis in credibility in the United States in the aftermath of the debacles of Enron and WorldCom.