Criticism mounts of FSS oversight of TongyangIn June, a 47-year-old office worker surnamed Jeong received a call from an employee at Tongyang Securities, the brokerage arm of debt-ridden Tongyang Group. According to Jeong, he was introduced to investing in bonds issued by the conglomerate and was told he would get an annual interest rate of 7 percent, more than three times higher than the market average.
“I decided to invest 30 million won ($27,926) after hearing from the employee that the principle would be guaranteed,” Jeong said. “All he did was to ask for my [account] password and said he would sort other things out.”
The bonds Jeong invested in were to mature after 18 months and were issued by Tongyang Corporation, which filed for court receivership on Monday. Market analysts note that considering the sour financial conditions of the conglomerate’s de facto holding company, Jeong will most likely lose more than 70 percent of the 30 million won he invested.
“Come to think of it, isn’t it an unfair financial practice to persuade a consumer to join a financial product based simply on a call without having me sign a contract?” he asked in an anxious voice.
Jeong is just one of the 49,000 individuals who invested in the corporate bonds and commercial paper of Tongyang Group affiliates through Tongyang Securities.
Ever since concerns rose over the fate of Tongyang Group last month, with the conglomerate not securing enough funds to pay back its due debts, a growing number of consumers who invested in Tongyang Group affiliates have expressed worry and started to file complaints. So far, five affiliates of the cash-strapped group have filed for court receivership, and whether or not the court will allow them to continue its business is unknown.
The Financial Supervisory Service said yesterday it will expand the number of claim centers where consumers can file complaints over unfair treatment by Tongyang Securities. The regulator started receiving claims on Monday.
The FSS says it added 18 consultants to the complaint task force that now has 49 members, including six lawyers. It has also extended consulting hours to 8 p.m. from 5 p.m., and the centers now also operates on Saturdays and during holidays.
Despite these efforts, criticism is growing against the FSS for not having properly monitored Tongyang Securities. According to reports yesterday, Tongyang Corporation issued asset-backed commercial paper worth 156.9 billion won in July and September through a special purpose company set up to raise money.
“When I first heard the news regarding Tongyang, I was surprised that the regulator wasn’t able to have control over it and prevent the current crisis involving financial consumers from happening,” said an industry official. “There’s growing doubt over the role of the financial regulator.”
Last week, when controversy over Tongyang Securities rose, FSS Governor Choi Soo-hyun tried to calm investors, saying their money was safe. He even convened another press briefing earlier this week and repeated his remarks.
“Consumers should be cautious about making any quick decisions [to withdraw their investments],” Choi said. “Stock investments made through Tongyang Securities have been protected.”
With the possibility that their investments might evaporate, consumers are angry.
A 33-year-old surnamed Kang, who lives in Incheon, invested 65 million won in a three-month-maturity commercial paper of Tongyang International. The money was originally deposited in a safer cash management account (CMA). Kang said he received a call from an employee of Tongyang Securities who recommended the investment.
“I had saved the money to spend it later on jeonse [lump-sum deposit],” Kang said. “I asked the employee if the investment was safe and he told me I shouldn’t worry about it.”
Meanwhile, according to market sources, it’s likely that investors who poured money into the commercial paper and corporate bonds of the five affiliates that have filed for court receivership will not be able to get back their investments until the court decides within six months what percentage they can receive.
BY LEE EUN-JOO, LEE TAE-KYUNG [firstname.lastname@example.org]
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