Financial Services Commission suspends Discovery Fund management company for 3 months... Industrial Bank of Korea for 1 month

On the 20th, in front of the Financial Supervisory Service in Yeouido, Seoul, members of the Financial Justice Solidarity and victims of the Discovery Fund held a press conference urging collective dispute mediation related to the Discovery Fund. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Ji Yeon-jin] On the 16th, the Financial Services Commission (FSC) held a regular meeting and decided on measures including partial suspension of operations, fines, and sanctions on executives and employees against Discovery Asset Management and Industrial Bank of Korea (IBK) in relation to the Discovery Fund redemption suspension incident, which caused damages exceeding 200 billion KRW.

First, the FSC resolved to impose a three-month partial suspension of operations, a fine of 50 million KRW, a penalty surcharge of 15 million KRW, and a three-month suspension of duties on executives on the asset management company for violating the obligation to establish standards and restrictions on credit extensions to major shareholders, constituting violations of the Corporate Governance Act and the Capital Markets Act.

Additionally, for IBK's violations including failure to fulfill explanation obligations, incomplete sales practices, and violations of investment advertisement regulations, the FSC decided to suspend the institution's private fund investment brokerage operations for one month due to violations of the Capital Markets Act, and to impose fines totaling 4.71 billion KRW and sanctions on executives and employees.

The Financial Supervisory Service (FSS) will finalize sanctions against executives involved in this incident in the future. In the case of IBK, since there is no delegation to the FSS Director under the Industrial Bank of Korea Act, the FSC plans to decide on the overall sanctions and notify accordingly.

Discovery Asset Management was established in November 2016 by CEO Jang Ha-yeon, the younger brother of Ambassador Jang Ha-sung to China. From 2017 to 2019, it created funds such as the US Fintech Global Bond Fund and the US Fintech Real Estate Secured Debt Fund, which were sold through 12 commercial banks and securities firms including IBK, Hana Bank, and IBK Investment & Securities.

However, due to the asset freeze by the U.S. Securities and Exchange Commission (SEC) on the local asset manager DLI and subsequent court receivership, redemptions for domestic subscribers were suspended in April 2019. Notably, the Discovery Fund was heavily sold through IBK, accounting for 7.61 billion KRW, or 30%, of the total redemption suspension amount of 25.62 billion KRW. The damage caused by the redemption suspension amounts to 250 billion KRW, and it was revealed that Ambassador Jang and former Blue House Policy Chief Kim Sang-jo also invested.

The FSS decided last February at the disciplinary review committee to suspend Discovery Asset Management’s business for three months and to suspend CEO Jang Ha-won’s duties.

The FSC plans to take strict additional measures, including further sanctions, if illegal activities not discovered during the FSS inspection are proven through future police investigations and trials.

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