'Redemption Suspension Crisis' Jang Ha-won, Discovery CEO, Denies Charges in First Trial

Two Employees Indicted Without Detention Also Deny Charges
Victims Say "They Deny First Despite Claiming They Couldn't Review the Materials"

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Byung-don] Jang Ha-won, CEO of Discovery Asset Management (age 62), who is accused of causing damage worth thousands of billions of won due to the suspension of redemption of private equity funds, denied the charges at his first trial.

The Criminal Division 13 of the Seoul Southern District Court (Chief Judge Lee Sang-joo) held the first hearing at 11 a.m. on the 21st for Jang, who was arrested and indicted on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes, fraud, and violation of the Capital Markets Act. The hearing for A (age 42), head of Discovery’s investment division, and B (age 36), head of the management team, who were indicted without detention, as well as the corporation, was also held.

On this day, Jang’s defense attorney stated, "The case file amounts to over 20,000 pages, so we have not fully reviewed it yet, but we deny the criminal acts," and added, "Many parts of the indictment are different from the actual facts."

A and B of Discovery’s investment division also denied all charges.

The Discovery fund was sold through commercial banks such as Hana Bank and IBK Industrial Bank of Korea, as well as securities firms, from 2017 to 2019. Subsequently, due to issues such as Discovery’s incomplete sales and poor management, redemptions were suspended, causing losses to investors.

Jang established Discovery Asset Management in 2016 and managed the fund. He is also the younger brother of Jang Ha-sung, former ambassador to China and former Blue House policy chief. It is known that former Blue House policy chief Kim Sang-jo and former Bareunmirae Party lawmaker Chae Yi-bae, along with Jang Ha-sung and his spouse, also invested in the fund.

Jang and two others are accused of deceiving victims into believing that the fund was a safe investment with guaranteed high returns, despite investing in poor-quality U.S. online peer-to-peer (P2P) loan receivables from October 2018 to February 2019, and selling approximately 134.8 billion won worth of the fund.

According to the prosecution, from April 2017, while selling a fund operated by the U.S. asset management company DLI (Direct Lending Investment), Jang faced concerns about suspension of redemptions due to the poor quality of the underlying C loan receivables. In August of the same year, he resolved DLI’s redemption suspension crisis by establishing a special purpose company in a tax haven and purchasing the receivables.

In October 2018, although Jang already anticipated a loss of about 40 million dollars (approximately 52.3 billion won) from the C loan receivables, he concealed this fact and sold about 121.5 billion won worth of the fund to investors. Ultimately, all sales amounts were suspended from redemption.

Later, in March 2019, Jang was aware of the difficulty in recovering investments as the DLI CEO was reported to the U.S. Securities and Exchange Commission (SEC) for fraud and resigned as CEO. Nevertheless, he sold about 13.2 billion won worth of the fund and embezzled a significant amount.

The prosecution estimated the total sales amount of the fund sold by Discovery at 584.4 billion won, with the amount suspended from redemption totaling 154.9 billion won.

Last July, as investors’ complaints of damages continued, the police began an investigation, including imposing a travel ban on Jang and conducting raids on the selling banks.

On the 8th of last month, the court issued an arrest warrant citing concerns over evidence destruction and flight risk, and the prosecution indicted Jang on the 4th.

Meanwhile, many members of the Industrial Bank of Korea Discovery Fund Fraud Victims’ Countermeasures Committee also applied to attend the trial and observed the proceedings. Victims met immediately after the trial said, "We don’t understand the situation where the defendant denies the charges first, saying they have not properly reviewed the large volume of investigation records," and added, "We hope all criminal acts will be fully revealed during the trial process."

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