'100% Compensation for Faulty Private Equity Funds' Ripple Spreads in Financial Sector (Comprehensive)

100% Compensation Decision Spurs KDB Securities Relief Movement
Banking and Securities Industry Views 'Cold'

[Asia Economy Reporter Park Sun-mi] Korea Investment & Securities' decision to fully compensate customers for their principal investments in failed private equity funds such as Lime and Optimus is causing widespread repercussions. This unprecedented preemptive action, taken before the Financial Supervisory Service's Dispute Mediation Committee (DMC) issued its recommendations, is reportedly increasing confusion among banks, securities firms, and investors who have either already received compensation ratio recommendations or are awaiting results.

According to the financial industry on the 21st, the National Private Equity Fund Fraud Victims Joint Countermeasure Committee plans to hold rallies in front of the Financial Supervisory Service and private equity fund distributors on the 22nd and 24th, respectively, to fully reject the FSS's dispute mediation approach and actively advocate for the private settlement method (100% compensation) adopted by Korea Investment & Securities.

Victims argue that Korea Investment & Securities' decision on the 16th to fully compensate customers for principal investments in controversial failed private equity funds such as Lime, Optimus, and Discovery should be actively referenced by other private equity fund distributors. The impact of Korea Investment & Securities' decision is so significant that rallies are even planned in front of Industrial Bank of Korea, which has already accepted the 40-80% (individual basis) compensation ratio recommended by the FSS.

Unlike Industrial Bank of Korea, which recently accepted the FSS's recommended compensation ratio for the Discovery Fund, the FSS clearly stated there will be no readjustment by dismissing the Discovery Fund victims' request for compensation ratio reconsideration based on cases of 100% compensation.

Discovery Fund victims have requested a meeting with Yoon Jong-won, president of Industrial Bank of Korea, and sought dispute mediation through private settlement, but the bank maintains its stance on loss compensation through the FSS dispute mediation process. If the victims do not accept the FSS dispute mediation results by July 1, litigation remains the only resolution.

"Providing a Pretext That Confuses the Resolution of the Situation"

The financial industry's view of Korea Investment & Securities' voluntary 100% compensation decision is cold. Financial companies currently conducting loss compensation through the FSS dispute mediation process, which ensures objectivity, worry that Korea Investment & Securities' decision could provide a pretext for shifting to a private settlement method where compensation levels are determined through autonomous negotiations between parties and financial firms.

An industry insider said, "In Korea Investment & Securities' case, the scale of failed private equity funds for which 100% compensation was decided, including Lime, Discovery, and Optimus, amounts to only 158.4 billion KRW, and excluding funds already compensated, the remaining compensation amount is about 80.5 billion KRW, so the impact is not significant. Other banks and securities firms with larger failed private equity fund sales volumes find it difficult to make the same decision."

Another industry insider pointed out, "Failed private equity fund distributors are smoothly proceeding with voluntary compensation based on the FSS DMC's compensation ratio decisions to maintain objective fairness, but Korea Investment & Securities' case will stimulate investors' desire for 100% compensation," adding, "It could provide a pretext that further complicates the resolution of the situation."

There are also criticisms that Korea Investment & Securities decided on voluntary 100% compensation without any recommendation from the FSS DMC, possibly due to awareness of disciplinary hearings. In fact, on the same day, the Private Equity Fund Fraud Victims Joint Countermeasure Committee held a press conference in front of the FSS and announced that they would submit a petition to the FSS in support of Korea Investment & Securities' 100% compensation, requesting withdrawal or mitigation of sanctions. The petition asks the FSS disciplinary committee to show leniency, considering Korea Investment & Securities' reflective innovation and efforts for victim recovery.

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