DLF Replica?... Banks Anxious Over Potential 'Lime Bomb' Explosion

Banks Criticized for DLF Mis-selling Now Watchful Amid Lime Scandal
Investors Claim Banks' Mis-selling... Banks Say "We Are Also Victims"
Financial Authorities Monitor Investor Actions and Samil Accounting Firm's Due Diligence

[Asia Economy Reporter Kim Hyo-jin] As the Lime Asset Management private equity fund redemption suspension incident shows signs of spreading into an 'incomplete sales' issue, the banking sector, which was a major sales channel, is on high alert. Due to investors' continuous raising of issues, the 'bank responsibility theory' is growing, and the possibility of financial authorities' investigation is also increasing, raising concerns that it could escalate into a 'second Derivative Linked Fund (DLF) incident.' Banks claim they only acted as sales agents and were completely unaware of any illegal activities, positioning themselves as victims instead.

According to financial authorities and the financial sector on the 7th, the Financial Supervisory Service (FSS) is currently monitoring investors' movements and the on-site audit by Samil Accounting Corporation, preparing for an investigation into the fund-selling banks. Once the audit results are released, investors claiming damages are expected to take more active steps. The audit results could be announced as early as this week.

For the FSS to initiate investigations and dispute resolution procedures against the selling banks, formal complaints from investors must be officially submitted. Investors have already announced large-scale civil and criminal responses. A financial sector official said, "Considering usual procedures and effectiveness, it is highly likely that investors will request the FSS's investigation and dispute resolution before proceeding with civil and criminal actions."

As of the end of July last year, among the Lime Asset Management private equity fund sales balance of 5.7 trillion KRW sold by distributors, bank sales accounted for about 2 trillion KRW, or 34.5%. Woori Bank had the highest sales balance at 1.0648 trillion KRW, followed by Shinhan Bank with 421.4 billion KRW, KEB Hana Bank with 193.8 billion KRW, Busan Bank with 95.5 billion KRW, KB Kookmin Bank with 74.6 billion KRW, NH Nonghyup Bank with 59.7 billion KRW, Gyeongnam Bank with 53.5 billion KRW, IBK Industrial Bank with 7.2 billion KRW, and KDB Industrial Bank with 6.1 billion KRW.

Investors' responses are being led by the law firms Hannuri and Gwanghwa. Investors are making claims such as "I was told 'please do not invest in the fund,' but the bank staff enrolled me without any explanation," "I was introduced to a safe product with no principal loss and at worst, interest comparable to a deposit," and "The investor profile survey was manipulated to show an aggressive investment type."

There are also statements that investors were not informed about the possibility of losses or redemption delays, and that their investment profiles were arbitrarily filled out. The funds suspended from redemption since October last year are mainly sub-funds that indirectly invested in mezzanine (convertible bonds, bonds with warrants, etc.) and trade finance-related parent funds. For mezzanine funds, forecasts suggest principal loss rates of at least 40% and up to 70%.

The banks that acted as sales agents claim they are unfairly blamed. They argue that the current situation arose because Lime Asset Management invested in non-performing assets and engaged in rolling over and Ponzi schemes, and that the sales themselves were not problematic. Based on this stance, banks have formed a 'joint response team' to handle the situation.

A representative from a selling bank said, "After reviewing the audit results, we plan to demand Lime Asset Management to reestablish a repayment plan and devise measures to protect investors." Another bank official explained, "Since the Lime side's redemption-related press conference on October 14 last year, we have been reviewing various measures to protect investors and urging that investor assets not be damaged. We will take additional actions once the audit results are out."

This content was produced with the assistance of AI translation services.