Financial Supervisory Service Announces Severe Disciplinary Action on Lime Management... Implementation Possible as Early as August

[Image source=Yonhap News]

[Asia Economy Reporters Jihwan Park, Minji Lee] Financial authorities plan to impose heavy sanctions on Lime Asset Management, which caused a redemption suspension crisis worth 1.7 trillion KRW as early as August.

The Financial Supervisory Service (FSS) announced this on the 10th during a press briefing on the "Status of Lime Fund Transfer and Related Matters."

Regarding sanctions against Lime Asset Management, the financial authorities concluded, as with the announcement of the interim inspection results in February, that multiple serious violations were confirmed, making heavy sanctions unavoidable. Considering Lime Asset Management's involvement in fraud and other incidents, penalties such as license revocation or business suspension are also possible.

Kim Dong-hoe, Deputy Director of the Financial Investment Division at the FSS, explained, "The inspection results anticipated multiple illegal acts, and heavy sanctions are within the scope. Although the sanction process has not yet begun, heavy sanctions are expected."

However, sanctions will be carried out concurrently with the fund transfer, taking into account that measures to protect investors, such as managing the remaining funds, should precede actions against illegal activities by financial companies and their executives. The transfer of Lime fund assets to a bridge management company is targeted for the end of August.

The FSS also plans to initiate dispute mediation for the Trade Finance Fund (Pluto TF-1), among Lime Asset Management's redemption suspension funds, which has a high possibility of total loss. Additionally, it is preparing strong sanctions against securities firms involved in total return swap (TRS) contracts and incomplete sales.

For the Trade Finance Fund (Pluto TF-1), which has effectively resulted in a total loss, the FSS plans to activate its Dispute Mediation Committee as early as the end of this month to provide relief to victims. They are preparing a mediation proposal that could return up to 100% of the principal invested by those affected in the Lime incident.

The FSS stated, "Significant illegal activities have been confirmed through internal inspections and prosecution investigations, so we plan to promptly proceed with dispute mediation," adding, "Contract cancellations due to fraud or mistakes and compensation for damages caused by incomplete sales can be applied."

However, for funds such as Thetis 2, Pluto FI D-1, and Credit Insurance (CI), where losses have not been confirmed and dispute mediation is difficult, some sales companies are pursuing private settlements to provide emergency support to investors. Therefore, the FSS plans to initially leave this to the discretion of financial companies. Additional compensation will be supplemented depending on future decisions by the Dispute Mediation Committee.

Kim Cheol-woong, Director of the Dispute Mediation Division 2, explained, "Regarding the requirements for fund dispute mediation, damages must first be confirmed and quantified to determine the compensation ratio and amount. The damage amount does not immediately become clear just because a bridge management company is established." He added, "According to Lime's liquidation plan, which extends to 2025, the final amount of loss must be confirmed to determine compensation, so a prolonged dispute mediation process is inevitable."

Furthermore, regarding Shinhan Financial Investment, Daishin Securities, KB Securities, and others involved in TRS contracts and incomplete sales, inspections have been completed, and the FSS is preparing sanctions in parallel with providing investigation materials to the prosecution and the transfer and handling of Lime funds.

The FSS also requires banks that sold Lime funds to submit self-inspection results on incomplete sales by the 12th and plans to consider additional on-site inspections if necessary.

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