'250 Billion Won Damage' Jang Ha-sung's Brother's Fund, Victims Frustrated Over Sanctions and Relief Delays

Discovery Seller "Compensation After FSC Adjustment"... Most Have Not Even Started Adjustment
Victims' Group "Suspect Cover-up, Authorities' Passive Response and Sellers' Lukewarm Relief Efforts"

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] The suspension of redemptions for the 'Discovery Fund,' recently embroiled in controversy after it was revealed that Ambassador Jang Ha-sung to China and others had invested, occurred in 2019. However, many victims have yet to receive compensation even after four years. The scale of investor losses exceeds 250 billion KRW.

IBK Industrial Bank of Korea, which actively sold the Discovery Fund, maintains its stance to compensate according to the financial authorities' dispute resolution results, but the victims' group rejects the settlement proposal. Due to delays in inspections and sanctions by financial authorities, most sellers except IBK have not even started dispute resolution.

According to the financial sector on the 13th, the outstanding unpaid balance of the Discovery Fund was 256.2 billion KRW as of April 2021.

The Discovery Fund consisted of the 'US Fintech Global Bond Fund (Global Bond Fund)' and the 'US Fintech Real Estate Secured Debt Fund (Real Estate Debt Fund),' managed by Jang Ha-won, the younger brother of Ambassador Jang and CEO of Discovery Asset Management. It was sold through three banks, including the policy bank IBK Industrial Bank of Korea, and nine securities firms including Daishin Securities. In April 2019, redemptions were suspended due to the legal management of a local U.S. asset management company, causing investor losses.

The Financial Supervisory Service's sector inspection confirmed that IBK Industrial Bank of Korea engaged in 'incomplete sales' by misleading small and medium-sized enterprise and individual customers with phrases such as "There will be no loss unless the U.S. collapses" and "Yield of 3.x%" to misrepresent safety and profitability. Poor product selection and sales, as well as inadequate internal controls during the sales process, were also revealed.

The Financial Dispute Mediation Committee (FDMC) of the Financial Supervisory Service proposed a settlement plan based on inspection results for two cases sold by IBK Industrial Bank of Korea out of about 100 dispute mediation applications from victims by the end of April last year. If the financial dispute mediation is accepted, each investor can receive compensation ranging from 40% to 80%.

IBK Industrial Bank of Korea sold 361.2 billion KRW of the Global Bond Fund and 318 billion KRW of the Real Estate Debt Fund, among which 91.4 billion KRW (69.5 billion KRW + 21.9 billion KRW) was suspended from redemption.

An IBK Industrial Bank of Korea official stated, "We have prepaid 50% of the suspended redemption amount and are proceeding with the compensation process according to the Financial Supervisory Service's compensation recommendation. We have reached agreements and paid compensation to a significant number of customers." It is known that the unresolved balance among IBK's sales is about 22.8 billion KRW.

However, many IBK customers define the essence of the Discovery Fund incident as 'fraud' and reject the Financial Supervisory Service's settlement proposal, demanding '100% compensation like Korea Investment & Securities' or an increase in the compensation ratio. Korea Investment & Securities acknowledged seller responsibility and compensated 100% through private settlement rather than dispute mediation.

Shinhan Bank sold 95 billion KRW worth of the Real Estate Debt Fund. As the U.S. real estate loan market stagnated due to COVID-19 and other factors, redemptions were delayed, and the bank recovered about half of the fund's assets to pay customers. The current outstanding balance is about 48 billion KRW.

A Shinhan Bank official explained, "The Real Estate Debt Fund is not subject to controversies such as Ponzi scheme suspicions or investments by high-ranking officials. However, since redemptions are delayed, we have been conducting private settlements with customers at compensation rates ranging from 40% to 80% since December last year for the 48 billion KRW."

Customers of other sellers, like those of IBK Industrial Bank of Korea, have only received 50% of their principal as an advance payment and remain uncertain about when they will receive compensation. Banks and securities firms uniformly respond ambiguously, saying they will 'follow the Financial Supervisory Service's dispute mediation' or 'wait for investigation results.'

Hana Bank, which sold 24 billion KRW of the Global Bond Fund, said, "If the FDMC mediation proceeds, additional measures will follow based on the results."

To conduct FDMC mediation, the Financial Supervisory Service must ascertain facts through inspections, but except for IBK Industrial Bank of Korea, inspections and sanctions have been delayed, and dispute resolution procedures have not even started.

A Financial Supervisory Service official said, "Inspections of other sellers are underway or have been completed, and sanctions procedures are in progress. We will complete the related procedures promptly."

Meanwhile, the victims' group claims that the financial authorities' response to the Discovery Fund is lukewarm and unusually prolonged compared to the Lime and Optimus fund cases, suspecting a 'cover-up.'

Lee Eui-hwan, the situation room head of the Discovery Fund Countermeasure Committee, expressed frustration, saying, "Unlike the Lime and Optimus fund incidents, which occurred after the Discovery Fund, the authorities have been very quiet about the Discovery Fund, and victim relief is delayed."

Last February, the Financial Supervisory Service announced to the media that it had decided disciplinary actions (light sanctions) against IBK Industrial Bank of Korea and former CEO Kim Do-jin and other executives at the time of sale for responsibility in selling the Discovery Fund. However, it did not disclose the heavy disciplinary measures against Discovery Asset Management and CEO Jang decided on the same day, which the victims' group claims is suspicious.

The Financial Supervisory Service announced the disciplinary results for Lime Asset Management and Optimus Asset Management to the media.

Lee said, "Looking at the financial authorities' response to the Discovery Fund, it is hard to dismiss suspicions that they are protecting related parties because it is 'Ambassador Jang Ha-sung's brother's fund.' The authorities' passive attitude also causes sellers like IBK Industrial Bank of Korea not to actively pursue investor relief," he claimed.

A Financial Supervisory Service official emphasized, "On the day of the disciplinary hearing, media coverage focused on the level of sanctions against IBK Industrial Bank of Korea, so related information was unofficially provided. It is not true that only IBK-related matters were selectively disclosed while excluding decisions on Discovery Asset Management."

The Discovery Fund Countermeasure Committee also cited delays and weakening of inspections since the appointment of Financial Supervisory Service Governor Jeong Eun-bo, who advocated inspection system reforms, as reasons for the delayed victim relief.

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