CEO of Discovery Asset Management is arrested

Social Affairs

Published: 09 Jun. 2022, 18:13 Updated: 09 Jun. 2022, 19:21

CEO of Discovery Asset Management is arrested

Jang Ha-won, CEO of Discovery Asset Management, avoids reporters’ questions as he enters the Seoul Southern District Court in Yangcheon District in Seoul Wednesday morning. The court issued an arrest warrant later that evening. [NEWS1]

Jang Ha-won, CEO of Discovery Asset Management, a troubled fund company accused of causing losses to investors of over 250 billion won, was arrested Wednesday.

The Seoul Southern District Court issued a warrant that evening saying there was a "risk of escape and destruction of evidence." Jang faces charges of fraud and violation of the Capitals Market Act.

When applying for an arrest warrant for Jang last month, police said they would look into whether high-level interference was involved. The company's investors included senior Moon Jae-in administration officials.

The Seoul-based Discovery Asset Management, founded by Jang in 2016, 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 256.2 billion won of investor money became unavailable to the investors. The funds were marketed through the state-owned Industrial Bank of Korea (IBK) and 12 brokerage houses between 2017 and 2019.

The freezing of the funds caused huge losses to individual and corporate investors. Around 200 investors are victims.

In February, the Financial Services Commission (FSC) announced the results of a year-long review and fined the company 65 million won. It also recommended the suspension of CEO Jang Ha-won for three months.

After conducting a separate internal probe, police banned Jang from leaving the country in July 2021 and launched a formal investigation into whether he sold the funds knowing the possibility of insolvency.

Jang is the younger brother of economist Jang Ha-sung, a former Korean ambassador to China for the Moon Jae-in administration and the mastermind of Moon's income-led growth policy. Jang Ha-sung and his wife reportedly invested 6 billion won in the fund. Kim Sang-jo, a former presidential secretary for policy and Moon's first Fair Trade Commission chairman, reportedly invested about 400 million won in funds.

Suspicions were raised that Jang and Kim may have received special favors for redemption. However, Jang Ha-sung and Kim said they have not violated any laws about investments made by public servants.

Discovery Asset Management said it is a victim of the U.S. fund management company and will do everything it can to recover its investors' money.

Chae Yi-bae, a former lawmaker who works for the Democratic Party, also made an investment.

While the FSC found no wrongdoing in terms of their participation, the connection of the Blue House to the fund manager raised questions about conflict of interest and possible special favors.

Police could possibly summon former Chinese Ambassador Jang and Kim Sang-jo for questioning in the future.

Investors have also accused CEO Jang of a possible Ponzi scheme.

Discovery Asset Management was started in 2016 with 2.5 billion won in capital, and by the first half of 2017, it had about 50 billion won in assets under management.

The Seoul court did not issue an arrest warrant for another company executive surnamed Kim, who is being investigated on the same charges as Jang. It found that for Kim, "while the allegations are not light and there is good reason to suspect that a crime has been committed," there was little risk of flight or destroying of evidence.

Kim Do-jin, a former president of IBK, which sold Discovery funds during his tenure, was also summoned by police for questioning.

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.

BY SARAH KIM [kim.sarah@joongang.co.kr]