DLF First Trial Verdict Approaching... Financial Sector Focused

Administrative Lawsuit to Cancel Disciplinary Action Related to Private Equity Fund
Many CEO Disciplinary Actions for Similar Reasons Draw Attention

[Asia Economy Reporter Kiho Sung] The first trial ruling on the cancellation lawsuit against Sohn Tae-seung, Chairman of Woori Financial Group, regarding the overseas interest rate-linked derivative-linked fund (DLF) disciplinary action is expected to be announced on the 20th. The Financial Supervisory Service (FSS) has imposed severe disciplinary actions on CEOs of financial companies in connection with private equity fund incidents such as Lime and Optimus, based on the same disciplinary measures applied to Chairman Sohn. Therefore, financial companies are closely watching the outcome of Chairman Sohn’s first trial ruling.

According to the financial sector on the 19th, the Seoul Administrative Court is scheduled to hold the first trial verdict hearing on the 20th for the administrative lawsuit filed by Chairman Sohn against the FSS seeking cancellation of the disciplinary action.

Previously, in January last year, the FSS imposed a severe disciplinary warning on Chairman Sohn, holding him responsible for the DLF incident. At the time of the DLF sales, Sohn was the CEO of Woori Bank. If a financial company executive receives a severe disciplinary action, they are barred from employment in financial companies for the next three years. Accordingly, in March last year, Chairman Sohn filed an administrative lawsuit to cancel the disciplinary action and also requested a provisional injunction to suspend the disciplinary effect until the ruling is made. The Seoul Administrative Court had ruled in favor of Sohn’s provisional injunction request.

The key issue in this lawsuit is whether the violation of the obligation to establish internal control standards under the Financial Company Governance Act (Governance Act) can be grounds for severe disciplinary action against a CEO. According to the current Governance Act, "Financial companies must establish standards and procedures (internal control standards) that employees must comply with when performing their duties to comply with laws, conduct sound management, and protect shareholders and stakeholders." The FSS argues that Chairman Sohn’s disciplinary action is justified based on this, stating that he failed to establish "effective" internal control standards. On the other hand, Chairman Sohn’s side argues that since internal control standards were already established, disciplining management due to deficiencies is unfair.

The financial sector is paying close attention to the outcome of Chairman Sohn’s lawsuit because the core issue in disciplinary actions against other financial company CEOs related to private equity funds is also whether internal control standards were established. NH Investment & Securities CEO Jung Young-chae received a disciplinary warning in March last year for Optimus fund sales. In November last year, Park Jung-rim, current co-CEO of KB Securities (disciplinary warning), Na Jae-cheol, former CEO of Daishin Securities (suspension of duties), and Kim Hyung-jin and Kim Byung-chul, former CEOs of Shinhan Financial Investment (suspension of duties and cautionary warning respectively), were disciplined. Additionally, Ji Sung-kyu, Vice Chairman of Hana Financial Group, has also been preliminarily notified of a disciplinary warning.

If the FSS loses the case, the legitimacy of the private equity fund sanctions carried out so far could be shaken. In that case, a change in the FSS’s supervisory policy would be inevitable.

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