[2020 National Audit] Financial Authorities' Audit Start... Highlighting Issues of Private Equity Funds and New Deal Funds

Signs of 'Power-type Gate' Scandal Brewing as Opposition Prepares
New Deal Fund Controversy... 'Fund Battle' at National Audit

[Asia Economy Reporters Kim Hyo-jin and Park Ji-hwan] The National Assembly's Political Affairs Committee's audit began in earnest on the 12th with the Financial Services Commission, bringing the private equity fund scandal, which currently involves a suspension of redemptions amounting to 6 trillion won, into the spotlight. In particular, suspicions related to Lime and Optimus, which show signs of escalating into a 'power-type gate' scandal, are expected to be intensively addressed, drawing significant attention from both the financial and political sectors. Lawmakers are also expected to criticize the 'New Deal Fund,' a 'government-controlled fund' controversy that emerged due to investment losses covered by taxpayers' money.

The Political Affairs Committee of the National Assembly launched the audit of the Financial Services Commission on the morning of the same day and proceeded with audits of financial and supervisory authorities as well as major financial institutions. This audit is expected to focus on issues of incomplete sales by banks and securities firms surrounding the successive private equity fund scandals from Lime Asset Management last year to Optimus Fund this year, along with probing the financial authorities' responsibility for supervisory failures.

The Lime Asset Management scandal involved the management company hiding poor management while gathering funds from investors and investing in loan companies or insolvent businesses, which led to a suspension of redemptions. In the case of Optimus, investors were deceived into believing their money was being invested in safe public institution-issued government construction project receivables, resulting in significant damages. The damage amounts to 1.6 trillion won for Lime and 500 billion won for Optimus.

Especially as suspicions of involvement by figures from the Blue House and the ruling Democratic Party have been raised, fierce confrontations between the ruling and opposition parties are expected. On the 8th, Kim Bong-hyun, former chairman of Star Mobility, known as the behind-the-scenes financier of Lime Asset Management, testified in court that "In July last year, I handed over 50 million won to Kang Ki-jung, then Senior Secretary for Political Affairs at the Blue House, through Lee Kang-se, CEO of Star Mobility."

Regarding the Optimus Fund case, internal documents reportedly contain the real names of about 20 political and government figures, including members of the Democratic Party. On the previous day, Kim Eun-hye, spokesperson for the People Power Party, stated in a commentary, "A former Blue House Senior Secretary for Political Affairs appeared in the Lime scandal," adding, "The shadow of a 'power-type gate' where the president's close aides and regime power brokers privatize power for personal gain looms."

This is why many individuals summoned as witnesses and reference persons in this audit are related to private equity funds. On the 13th, during the Financial Supervisory Service audit, the Political Affairs Committee plans to summon Jung Young-chae, CEO of NH Investment & Securities (seller of the Optimus Fund), and Oh Ik-geun, CEO of Daishin Securities (seller of the Lime Fund), as witnesses to question whether there was illegality in fund sales. Additionally, Kwon Hyuk-kwan, representative of the Optimus victims' association emergency committee, and Kwak Sung-eun, a victim of the Lime Fund, are scheduled to attend as reference persons, where they are expected to provide detailed testimonies about victims' positions and cases.

People Power Party, Full-Scale Effort to Block 'New Deal'

The policy-type New Deal Fund, which supports the government's 'Korean New Deal' project, is also under scrutiny in the audit. Eun Sung-soo, chairman of the Financial Services Commission, expressed in his opening remarks at the audit that the plan is to establish and operate the policy-type New Deal Fund by the first half of next year. To this end, the Financial Services Commission plans to prepare detailed operational plans for the policy-type New Deal Fund by next month and hold business briefings for each New Deal sector from this month through next month. The Financial Services Commission also intends to encourage private-sector activation of independent New Deal funds by developing the Korea Exchange's 'Green Index' this year and launching 'New Deal Index-linked investment products.'

The People Power Party is preparing a concentrated offensive based on the findings of the 'Government Policy Monitoring Special Committee,' launched earlier this month. Their stance on the New Deal Fund is that "the government, with less than two years left in its term, is irresponsibly pushing forward a five-year government-controlled fund."

Recently, Hana Financial Investment's report expressing negative opinions about the New Deal Fund and the circumstances surrounding its deletion have also become controversial. Regarding this, Choi Jung-wook, an analyst at Hana Financial Investment who wrote the report, will testify as a reference person. In addition, issues such as the toast controversy involving Lee Dong-geol, chairman of KDB Industrial Bank, the recent surge in unsecured loans, and allegations of recruitment irregularities at some banks are expected to be addressed in the Political Affairs Committee audit.

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