Possibility of Prosecution for Lime Sales Corporation... Attention on Impact of Civil Lawsuits if Criminal Liability is Proven

Woori Financial Group Chairman Suspended from Duty... Daishin and Shinhan Investment Corp. Indicted
"If They Sold Funds Knowing of Their Insolvency, They Are Accomplices or Aiders in Fraud"

[Asia Economy Reporter Lee Seon-ae] As the Financial Supervisory Service (FSS) continues to issue severe disciplinary actions to executives of Lime Asset Management (Lime) fund distributors, the possibility of additional indictments against the corporations is also emerging. If corporate criminal liability is recognized, it could also affect civil lawsuits filed by victims against the distributors, drawing significant attention.

According to financial sources on the 7th, the FSS sent a prior disciplinary notice related to the inspection results to Woori Bank, a Lime fund distributor, on the 3rd, and pre-notified Son Tae-seung, Chairman of Woori Financial Group and then CEO of Woori Bank during the Lime incident, of a 'suspension from duty.' Suspension from duty is the second highest level of disciplinary action among the five levels for financial institution executives, following a recommendation for dismissal.

Previously, in last year's Lime-related disciplinary hearings, the FSS imposed the same sanctions on Yoon Kyung-eun, former CEO of KB Securities, Kim Hyung-jin, former CEO of Shinhan Financial Investment, and Na Jae-cheol, former CEO of Daishin Securities. The main grounds for the sanctions were the distributors' failure to properly establish internal control standards and negligence in management.

Following the FSS's disciplinary announcement, prosecutors indicted Shinhan Financial Investment and Daishin Securities under the joint penalty provision for 'negligence in employee supervision,' holding the two corporations responsible for fraudulent unfair trading and improper solicitation. This is the first case where distributor corporations have been criminally prosecuted in relation to fraudulent unfair trading and incomplete sales of private equity funds.

Investigations into the Lime-related suspicions involving KB Securities and Woori Bank, which have not yet been indicted, are ongoing. Last year, prosecutors conducted raids on KB Securities, Woori Bank, and others, securing sales and management documents related to Lime funds. Chairman Son was also subject to a raid concerning allegations of improper solicitation involving former Daegu High Prosecutor General Yoon Gap-geun.

Based on the investigation status, there is speculation that it will be difficult for Lime fund managers at Woori Bank and KB Securities to avoid criminal liability.

Woori Bank had the largest Lime fund sales amounting to 357.7 billion KRW among distributors, and KB Securities provided total return swap (TRS) loans to Lime. Employees of these distributors are suspected of continuing sales while concealing the occurrence of Lime fund insolvency despite being aware of it.

In the legal community, the prevailing view is that as prosecutors indict the Lime fund managers at each bank, the corporations will also be brought to trial under the joint penalty provision. Although corporations indicted under the joint penalty provision typically face only fines even if found guilty, limiting the significance of the punishment, recognition of criminal liability could influence dispute mediation or damage compensation lawsuits that determine the compensation ratio for victims' losses.

The Financial Justice Solidarity stated, "If distributors continued sales with the intent to deceive customers despite knowing the fund's insolvency and received commissions as compensation, they could be considered accomplices or accessories to fraud," adding, "If management was informed or directed this, not only the corporation but also the individuals could be subject to criminal punishment."

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