[EDITORIALS]Investors Must Always Be ProtectedThe court has ordered the investment trust company that bought bonds issued by the ailing Daewoo Group in July 1999 to compensate its clients. The ramifications from that ruling are spreading across the investor community, financial institutions and the government authorities that deal with financially troubled companies. A host of lawsuits involving investment trust companies and their clients is expected to follow and the argument between the government and companies that say they purchased Daewoo bonds at the order of state financial authorities is likely to intensify. Furthermore, creditors of such troubled companies as Hynix Semiconductor and Orion Electronics will now refuse to "cooperate" with the government in dealing with the companies' debts. The government should reconsider the methods and schedule of its financial industry restructuring programs.
Making judicial and administrative judgments on this matter is premature. The court ruling was an outcome of the first trial and we should wait until the Supreme Court hears the case.
But regardless of the final decision, we need to closely review the meaning of this event. The court said in its ruling that if the investment trust company bought Daewoo bonds at the order of state financial authorities or with the agreement of Daewoo's creditors, that is a matter between the company and the government or creditors and not something that should relieve the company of responsibility for clients.
While there are criticisms that the court did not take into account the dire situation South Korea faced during the Asian financial crisis and applied legal principles too strictly, we should view the ruling as one that confirms once again how important it is for financial institutions to protect their clients' interests. In particular, this controversy should serve as an opportunity for the government to curtail its direct intervention in the workings of the nation's financial industry. Granted, the government cannot remain nonchalant toward the market when it is in a serious crisis. But unilateral policies that force firms to follow government directives without condition are apt to produce their share of side-effects. The government's role should be clearly defined.