Prosecution Indicts KB Securities Involved in 'Lime Scandal'...Negligence in Supervisory Duties Alleged (Comprehensive)

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[Asia Economy Reporter Yoo Byung-don] KB Securities Corporation has been brought to trial on charges of negligence in duty of care and supervision in the Lime Asset Management scandal, which caused damages worth approximately 1.6 trillion KRW.

The Criminal Division 6 of the Seoul Southern District Prosecutors' Office (Chief Prosecutor Kim Rak-hyun) announced on the 8th that KB Securities was indicted for violating the Act on Capital Market and Financial Investment Business (Capital Market Act).

The prosecution applied joint liability provisions to the corporation for neglecting its duty of care and supervision over the criminal acts committed by KB Securities employees.

Earlier, on the 25th of last month, the prosecution indicted five KB Securities employees and former Lime Vice President Lee Jong-pil on charges including violations of the Capital Market Act. Among the five indicted KB Securities employees, Team Leader Kim was indicted in custody, and former Lime Vice President Lee is already in custody.

According to the prosecution, Kim and Lee, among others, are accused of concealing the fact that Lime’s main fund, contrary to the proposal stating it would invest in 'A-rated high-quality corporate bonds, etc.,' was actually invested in unrated private bonds, and selling a sub-fund worth approximately 16.7 billion KRW that was 100% invested in this fund.

The prosecution also found that KB Securities employees, while selling 11 funds from February 2018 to July 2019, indirectly received fund sales fees by adding total return swap (TRS) fees paid by Lime and other asset management companies, while representing and selling to customers that there were no fund sales fees.

TRS refers to a de facto loan where a securities company purchases assets on behalf of others and receives fees from the asset management company. The securities company recovers funds with priority at the fund’s maturity, and investors receive the remaining proceeds.

Kim, who is in custody, was also investigated for allegedly using insider information for private gain. The prosecution stated that from September 2018 to April 2019, during the Lime fund investment process, Kim used insider information to insert advisory contracts between the investment target company and a corporation where he was the actual shareholder, receiving fees from the investment target company, thereby obtaining private benefits totaling approximately 400 million KRW over three occasions.

Previously, after indicting former Shinhan Financial Investment PBS Division Head Lim for involvement in fraud related to Lime’s overseas trade finance fund, the prosecution also indicted Shinhan Financial Investment Corporation. At that time, the prosecution applied joint liability provisions under the Capital Market Act, recognizing that Shinhan Financial Investment neglected its duty of care and supervision over Lim’s fund rolling and incomplete sales activities.

In response, KB Securities stated, "Our employees neither recognized the insolvency of the Lime fund in advance nor conspired or participated in Lime Asset Management’s illegal operations, and the company has not neglected employee management and supervision." They added, "We will actively clarify that the prosecution’s claims are not factual during the upcoming trial proceedings."

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