Dispute Over Responsibility in Lime Fund... Prolonged Crisis Expected

[Asia Economy Reporter Haeyoung Kwon] Concerns are rising that the Lime Asset Management fund controversy will be prolonged as disputes over responsibility between the asset manager and sales companies intensify. Sales companies argue that since the asset manager's actions were illegal and, unlike the ultra-high-risk derivative-linked fund (DLF), the product structure is not complex, the possibility of mis-selling is low and therefore they bear no compensation responsibility. On the other hand, investors intend to sue both the asset manager and the sales companies that recommended the mis-selling, and financial authorities are also keeping the possibility of mis-selling open, leading to expectations that the situation will be even more complicated than during the DLF case.

According to financial authorities and related industries on the 14th, 16 Lime fund sales companies including banks and securities firms have formed a joint response team and plan to take strong legal actions such as criminal complaints if illegal acts by Lime Asset Management are confirmed.

Sales companies claim that while the DLF had a risk rating of level 1, Lime's investment risk is rated level 3 to 4, and the product sales process is not complicated, so there is no problem. Accordingly, they say they cannot accept compensation responsibility.

In particular, if banks are held liable for compensation, they cannot avoid sanctions from financial authorities like in the DLF case, and for some sales companies facing DLF sanctions, this could significantly affect their governance structure, leading to predictions that they may not hesitate to engage in litigation. A representative from a major commercial bank said, "The Lime fund issue is not due to mis-selling by sales companies but because the asset manager deliberately deceived the sales companies," adding, "From the sales companies' perspective, it is difficult to detect such problems in advance, so the banks currently embroiled in controversy are also victims."

On the other hand, investors are asserting mis-selling. Currently, more than 100 dispute mediation complaints related to Lime Asset Management's private equity funds have been filed with the Financial Supervisory Service.

The number of individual and corporate accounts subscribed to Lime Asset Management funds, whose redemption and repayment have been delayed due to expected actual damage, exceeds 4,000. Among these, individual accounts number about 3,600. As of the 12th, more than 1,000 people have joined the "Lime Asset Management Redemption Suspension Victims Group" internet cafe established by the law firm Gwanghwa to assist victims.

Financial authorities also maintain that they need to see the results of due diligence but are keeping the possibility of mis-selling open. A Financial Supervisory Service official said, "We need the audit results from the accounting firm to estimate investor losses," adding, "After that, we can initiate dispute mediation procedures and investigate whether mis-selling occurred."

Samil Accounting Corporation recently informed Lime Asset Management and the Financial Supervisory Service that it plans to deliver the due diligence results by the end of this month or early next month.

Some quarters are also raising questions about the responsibility of financial authorities. It is pointed out that while financial authorities have continuously relaxed regulations on the hedge fund market in recent years, they have failed to establish procedures to protect investors.

Meanwhile, according to the office of National Assembly member Seong Iljong of the Political Affairs Committee, among the 1.5587 trillion KRW of Lime Asset Management funds that may face redemption delays, individual investors' investment amounts stand at about 917 billion KRW. Of this, Woori Bank sold 325.9 billion KRW, Shinhan Financial Investment 124.9 billion KRW, and KEB Hana Bank 95.9 billion KRW. In terms of the number of accounts, Woori Bank had the most with 1,448, followed by Hana Bank (385), Daishin Securities (362), Busan Bank (216), and Meritz Securities (229).

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