Growing Suspicions of Incomplete Sales in Lime Asset Management

From late 2017 to mid-2018
Daishin Securities Banpo WM Center fund sales
Received money first, contract signed 6 months later
Banpo investors plan civil lawsuits

Many investors unaware of TRS contracts
Disputes expected over disclosure by sellers

Some banks also fabricated investment info
Controversy as PBs sold TRS products unknowingly

[Asia Economy Reporters Kangwook Cho, Hyeonggwang Ko, Jihwan Park] Suspicions of incomplete sales regarding Lime Asset Management funds, which sparked controversy due to a large-scale redemption suspension incident last October, are snowballing.

According to the financial investment industry on the 13th, Daishin Securities Banpo WM Center reportedly sold Lime Asset Management funds from the end of 2017 to mid-2018 without having some investors sign contracts. In a typical fund sales process, the risks of the product must be immediately disclosed to the customer, and a signature must be obtained on the spot. Even signing up for a simple financial product at a bank or securities branch usually takes more than an hour for this reason.

However, at the Banpo WM Center, they first collected money from the contract holders and only obtained signatures on the contracts belatedly after about six months. Additionally, it was found that the investment propensity analysis to distinguish whether investors were 'risk-taking' or 'safety-seeking' was not properly conducted during the fund sales process. In this regard, the law firm Woori plans to soon file a civil lawsuit representing Banpo WM investors against Daishin Securities, former WM Center head Jang, and Lime Asset Management, seeking contract cancellation. Previously, Daishin Securities sold a total of 69.2 billion KRW worth of Lime Asset Management funds to individual investors, of which about 50 billion KRW was sold through the Banpo WM Center.

As voices from investors claiming they were not informed about the total return swap (TRS) contracts signed between securities firms and Lime Asset Management grow louder, related incomplete sales controversies are heating up. According to a recent audit by Samil Accounting Corporation, the expected recovery rates of the redemption-suspended mother funds 'Pluto FI D-1' and 'Thetis No. 2' were found to be only 50-65% and 58-77%, respectively. However, since the repayment rate of Lime funds is about 50%, the losses for investors in sub-funds that signed TRS contracts are even greater. In a situation where the TRS fund itself has halved in value and repayments are delayed, there may be cases where recovery becomes impossible.

One Lime fund investor lamented, "I was never informed about TRS when subscribing to the product," adding, "If I had known that the securities firm could receive money before me, I would never have subscribed. It's a kind of subordinated bond?who would put money into that?" Fierce disputes are expected in future Financial Supervisory Service dispute mediation or lawsuits over how thoroughly sales companies explained these matters to investors. Currently, Article 47 of the Capital Markets Act and Enforcement Decree Article 53 only mention 'matters that may significantly affect the value of financial investment products and risks associated with investment' without specifying details. Therefore, whether investors could reasonably understand at the time of fund subscription that TRS contracts make them subordinated creditors behind securities firms will likely become a key issue.

In the banking sector, suspicions of incomplete sales of 'Lime funds' are growing following incomplete sales of overseas interest rate-linked derivative-linked funds (DLF). Allegations have been raised that some bank branches arbitrarily filled out investor information confirmation forms without investors' knowledge to sell Lime funds. There is also controversy that even the responsible private bankers (PBs) sold Lime Asset Management funds without knowing whether the products had TRS contracts with securities firms.

Investors who have already suffered losses due to Lime Asset Management's redemption suspension have filed numerous lawsuits not only against financial institution executives such as Sohn Tae-seung, chairman of Woori Financial Group, the representative of the sales company Woori Bank, but also against PBs who directly sold the products to victims. The scale of Lime Asset Management funds sold with potential redemption suspension in the banking sector is 325.9 billion KRW at Woori Bank, 275.6 billion KRW at Shinhan Bank, 95.9 billion KRW at Hana Bank, and 20 billion KRW at Gyeongnam Bank.

The victims' side pointed out, "The reason incomplete sales have not been eradicated for 10 years is due to the widespread mistaken perception and practice that branch managers and PBs on the sales front line do not bear criminal responsibility," adding, "It is necessary to confirm how seriously wrongful incomplete sales practices or fraudulent sales solicitations disrupt the order of the financial market and cause enormous damage to victims, and to impose severe punishment."

In response, the banks claim they only acted as agents in selling the funds and were completely unaware of any illegal activities, asserting that they themselves are victims. A bank official said, "We are currently forming a joint response team among sales companies to conduct fund due diligence, and once the results are out, we are considering requesting a rescheduling of fund payments and taking legal measures."

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