Troubled investment fund linked to key administration officials

Finance

Published: 17 Feb. 2022, 18:23 Updated: 21 Feb. 2022, 17:15

Troubled investment fund linked to key administration officials

Investors of Discovery Asset Management demanding that the fund management company and the state-owned Industrial Bank of Korea refund 100 percent of their investment loss in front of the bank’s headquarters in Seoul on Wednesday. [YONHAP]

Discovery Asset Management, a troubled fund company under investigation, has among its investors senior administration officials who are architects of key Moon Jae-in policies.

The information was disclosed Wednesday following a year-long review by the Financial Services Commission. While no wrongdoing has been found so far in terms of their participation, the connection of the Blue House to the fund manager raises questions about conflict of interest and possible favoritism.

Discovery Asset Management operated funds that invested in U.S. assets. In 2019, the U.S. Securities and Exchange Commission accused the company managing the portfolio in the United States — Direct Lending Investment (DLI) — of fabricating values and returns, and the funds were frozen.

A total of 256 billion won of investor money is now unavailable to the investors.

The funds were marketed through state-owned Industrial Bank of Korea (IBK) and 12 brokerage firms between 2017 and 2019.

After the review, the operations of Discovery Asset Management were suspended for three months and CEO Jang Ha-won is prohibited from working for three months, punishments previously recommended by the Financial Supervisory Service.

The FSC fined the company 65 million won.

IBK, which sold about 30 percent of the funds, was fined 4.7 billion won, and some its business operations have been suspended for a month.

Some 361.2 billion won of Discovery Asset Management funds investing in global bonds were sold to investors through IBK, while 318 billion won of real estate-related funds were sold through the bank.

Hana Bank and Shinhan Bank also sold funds for the company.

Jang Ha-sung, Korean ambassador to China and former Blue House policy chief who is the brother to the controversial Discovery Asset Management CEO. [YONHAP]

Discovery Asset Management CEO Jang Ha-won is the brother of Jang Ha-sung, Korean ambassador to China.

Jang Ha-sung, a former Korea University business school finance professor, is the mastermind of Moon's income-led growth policy, which was devised to transform Korea from an export-dependent country to a domestic-demand led economy.

According to the report, Jang Ha-sung and his wife invested 6 billion won in the fund.

Kim Sang-jo, Blue House policy chief for Moon and Moon's first Fair Trade Commission chairman, was found to have invested about 400 million won in funds of the fund management company.

According to local press reports, Jang Ha-sung and Kim were given favorable contracts, which allow them to cash in early while other investors have to stay in the fund until maturity.

The asset management company was started in 2016 with 2.5 billion won in capital, and by the first half of 2017, it had about 50 billion won of assets under management. The Moon administration started in May 2017.

Investors in the fund included Korea University professors.

The two officials have denied all accusations. Through statements, both Jang Ha-sung and Kim have argued that they have not violated any laws regarding investments made by public servants.

The Seoul Metropolitan Police have prohibited Jang Ha-won, the fund management company's CEO, from leaving the country and summoned him for questioning on Feb. 9 on accusations of intentionally hiding the troubles while continuing to sell funds to investors.

Discovery Asset Management argues that it is merely a victim of the U.S. fund management company and that it will do everything it can to recover funds for investors.

The asset management company added that Jang Ha-sung, the ambassador, has not redeemed his investments and is in the same situation as other investors.

The Blue House has connections to other troubled fund managers.

The CEO of Co-link PE, who was arrested for embezzlement, is the cousin of Cho Kuk, former Blue House anticorruption secretary and justice minister under Moon's government. Cho's wife was a major investor in the fund.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]