German Heritage retail investors should be made whole: FSS

Protesters stage a rally in front of the headquarters of the Financial Supervisory Service in western Seoul on Nov. 14. [YONHAP]

Six financial institutions should return all funds invested by retail clients in German Heritage financial products, a regulator has recommended.

A total of 430 billion won ($318 million) should be repaid to retail investors, a Financial Supervisory Service (FSS) committee announced Tuesday.

The committee concluded that the six financial companies had introduced product proposals from foreign asset management firms that were exaggerated or inaccurate.

Three types of financial products related to German Heritage were sold: funds, trusts and derivative-linked (DLS) securities products.

German Heritage said it was in the business of buying and remodeling historic buildings in Germany.

Local sellers of the funds were suspected of not properly disclosing the risks and uncertainties associated with investing in the products to their customers.

Seven companies marketed the funds, and complaints were filed against six. They are four brokerage firms – Shinhan, NH, Hyundai Motor and SK – and Hana and Woori banks.

Shinhan Securities sold 390.7 billion won of funds, NH Investment & Securities 24.3 billion won and Hana Bank 23.3 billion won.

The troubled financial products were sold by local financial firms from 2017 through the following year. Fund redemptions were suspended in June 2019.

The financial products were based on funds managed by Singapore’s Banjaran Asset Management, which invested in German historic-site remodeling projects undertaken by the German Property Group, formerly known as Dolphin Trust.

The German real estate developer filed for bankruptcy in July 2020, and its product was described as a “pyramid scheme” that collapsed after taking in 1.5 billion euros ($1.55 billion) from investors.

The German “developer’s business history or credibility were either false or exaggerated,” Kim Beom-joon, Deputy Governor for Consumer Rights Protection at the FSS, said at the press conference held in Yeouido, western Seoul, on Tuesday.

Professional investors are excluded from the recommendation because they are likely to have been aware of the underlying risks of the financial products, according to the FSS.

BY JIN MIN-JI [jin.minji@joongang.co.kr]