Estimated Loss Rate of Optimus, Why Is There Such a Big Difference?

Authorities and Fund Sellers Disagree on Recovery Value and Criminal Assets
Financial Supervisory Service Begins Review of Dispute Resolution Proposal...Watchful for Contract Cancellation Application

[Asia Economy Reporter Park Jihwan] After the financial authorities announced the results of an audit by an accounting firm indicating that the loss rate of the Optimus Asset Management fund, which involved an investment of 510 billion KRW, could reach up to 92%, criticisms arose that the estimate was excessively conservative. This estimate differs by as much as 9 percentage points from the loss rate estimated by NH Investment & Securities, the fund distributor. Based on the audit results, the financial authorities have begun legal reviews of dispute resolution plans to compensate investors for their losses.

◆Why do Samil Accounting and NH Securities differ on recovery rates?= On the 11th, the Financial Supervisory Service (FSS) announced the results of an audit conducted by Samil Accounting Firm over approximately four months since July on the investment funds of the Optimus fund. According to the report, the expected recovery rate of the Optimus fund was only between 7.8% (40.1 billion KRW) and 15.2% (78.3 billion KRW). The principal invested by customers across 46 funds amounted to 514.6 billion KRW, meaning that over 90% of the money has disappeared.

The low expected recovery rate was analyzed to be due to a significant portion of the funds flowing to companies directly or indirectly related to Optimus. In particular, during the accounting firm's audit process, they were ultimately unable to confirm the whereabouts of 139.6 billion KRW. An FSS official explained, "As the fund money passed through companies acting as first- and second-tier conduits, the rights relationships became unclear," adding, "The amount lost to fraud directly by these companies is also large, which appears to contribute to the low recovery rate."

There is also a difference of more than 9 percentage points compared to the recovery rate estimated by NH Investment & Securities. The recovery rate is calculated by dividing the expected amount to be recovered (numerator) by the remaining fund balance (denominator). First, the amount estimated by NH Investment & Securities for the numerator was larger than the amount identified by the accounting firm. While the accounting firm estimated between 40.1 billion KRW and 78.3 billion KRW, NH Investment & Securities believes the total recovery amount could increase up to 110 billion KRW. Additionally, the accounting firm evaluated the money invested in apartment redevelopment projects as having 'no' recovery value due to ongoing lawsuits. However, NH Investment & Securities expects that through investment banking (IB) capabilities and civil and criminal litigation, additional recoveries may be possible.

There is also a difference in the denominator amount. NH Investment & Securities excluded the fund amounts subscribed by Optimus affiliates such as TrustAll, considering them as assets related to criminal activity from the fund balance. In contrast, the audit report included the subscription amounts of affiliates, which lowered the recovery rate.

◆Will investors get 100% of their investment back?= The FSS has started legal reviews of dispute resolution plans aimed at compensating investors by the end of the year. Various dispute resolution plans are currently under consideration, including options similar to the Lime Asset Management trade finance fund (Pluto TF-1), such as full principal refund through contract cancellation, and approaches that hold multiple parties?fund distributors, trustees, and administrative agencies?jointly responsible.

The biggest issue is whether contract cancellation, which was applied to some Lime funds, can also be applied to the Optimus case. If contract cancellation is applied, the contract itself becomes void, allowing investors to recover 100% of their principal. Since Optimus deceived investors by claiming to invest in safe public institution accounts receivable but actually invested in private bonds of insolvent companies, there is a rationale to consider this as contract cancellation due to fraud.

The FSS is also reviewing whether 'contract cancellation due to mistake,' as applied in the Lime fund dispute resolution, can be applied to the Optimus case. This interpretation is based on the fact that investors were misled at the time of contract into investing in a product?public institution accounts receivable?that did not actually exist.

There is also consideration of holding the fund distributor, trustee, and administrative agency jointly liable for compensation. Besides NH Investment & Securities, the largest distributor, the trustee Hana Bank and the administrative agency Korea Securities Depository have faced criticism for failing to properly manage and supervise the fund. A legal expert explained, "If further investigations by prosecutors and court trials reveal the responsibility and extent of fault of Korea Securities Depository, Hana Bank, and others, it may be possible to hold multiple parties jointly liable."

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