Financial authorities re-investigate fund scandals

Financial Supervisory Service Gov. Lee Bok-hyun speaks to reporters following an event for small and mid-sized companies at Hana Financial Group’s global campus in Incheon on Aug. 10. [NEWS1]

Financial authorities and the prosecution relaunched an investigation into three asset management companies - Lime, Optimus, Discovery - that were at the center of an infamous fund scandals after discovering additional law violations.

The Financial Supervisory Service (FSS) said it has conducted an additional investigation into the three asset management firms – Lime, Optimus and Discovery – accused of creating and selling fraudulent financial products as well as freezing fund redemption, causing investors to lose trillions of won in 2019.

“Lime transferred the losses to other fund investors by providing preferential redemptions to some investors,” the FSS said in a statement last week.

Several brokerage firms, including Mirae Asset Securities, are suspected of helping provide the preferential redemption, according to sources from the financial industry.

Additional suspected violations included embezzlement and pursuit of private interest by employees.

The FSS found that 200 billion won ($151 million) was embezzled from five companies that Lime Asset Management invested in, according to the FSS on Monday.

The FSS also suspects an undisclosed executive at Optimus bribed a high-ranking official of a public institution in exchange for receiving 106 billion won worth of investment in its funds in 2016. Discovery is also suspected of falsely raising investment for new funds for the redemption of failed funds in 2019.

The fund scandals have spread to the political circle, with lawmakers among those suspected of receiving preferential redemptions. The FSS did not disclose the name of the lawmaker who received the preferential redemption.

The main opposition Democratic Party called the FSS investigation a “political repression.”

Four-term lawmaker Kim Sang-hee of the Democratic Party staged a protest following the FSS announcement, saying that she suffered thousands of won in losses from investing in the Lime fund. FSS Governor Lee Bok-hyun has apologized, she added.

Democratic Party leader Lee Jae-myung also criticized the investigation, saying that the investigation into the scandal was based on unverified facts and Kim was forcibly linked for a political purpose.

He added the FSS chief “will be accountable.”

More than 13,000 people invested in some 5 trillion-won worth of funds that were not redeemed from 2017 through July 2022, according to data submitted to People Power Party lawmaker Yun Ju-keyng by the FSS. Only 47.5 percent of these investments were redeemed.

“The accountability of the asset management companies and the fund sellers could increase if people invested after being told the funds were to be properly redeemed” when that was not actually possible, according to FSS Senior Deputy Governor Hahm Yong-il.

“We have confirmed links between people related to Lime and investees. We also notified the prosecution that there was an abnormal usage [of the investment] related to embezzlement. Specific usage of the money is an area that requires investigation,” Hahm added.

Lime and Optimus declared bankruptcy last year after causing financial damage to their investors.

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