Reviewing Jang Ha-won's Indictment... Discovery and Future Trial Issue: 'Intentionality'

Notified of Risk of Insolvency at Least 4 Times
Sold 135 Billion Won Despite Knowing the Risk
Covered Up Without Informing Investors
Arrested and Indicted on Fraud Charges under the Special Act
CEO Jang's Side Claims "No Intent to Deceive"

Trial on the 25th to Debate 'Intentionality'

[Image source=Yonhap News]

[Asia Economy Reporters Seongpil Jo and Byungdon Yoo] The trial of Jang Ha-won, CEO of Discovery Asset Management, who caused damage to investors by halting redemptions of a private equity fund worth approximately 270 billion KRW, is expected to focus primarily on the question of 'intentionality.' The prosecution suspects that CEO Jang knew about the fund’s insolvency but concealed this fact for nearly two years while attracting investors. On the other hand, Jang’s defense maintains that there was no 'intent to deceive,' setting the stage for a fierce courtroom battle.

According to the indictment obtained by Asia Economy on the 4th, CEO Jang was aware of the fund’s insolvency but still sold bond funds worth about 135 billion KRW and engaged in a Ponzi-like scheme to repay investors. Jang reportedly received at least four similar warnings about the risk of insolvency of the U.S. parent fund starting from July 2017 but did not disclose this to investors. As a result, the fund’s insolvency materialized in April 2019, and all sales were suspended, the prosecution found.

CEO Jang established Discovery Asset Management in April 2017 and had been operating a fund investing in online investment-linked finance (P2P) loan receivables through the U.S. parent fund. This fund, known as the Discovery Fund until redemptions were halted, was sold through commercial banks and securities firms such as IBK Industrial Bank and Hana Bank. The prosecution estimates that the total amount raised from domestic investors by CEO Jang reached 270.8 billion KRW.

The prosecution concluded that CEO Jang sold funds worth 134.8 billion KRW by deceiving investors despite knowing about the insolvency risk of the parent fund. Specifically, in September 2017, Jang recognized that it would be difficult to resolve the asset insolvency issue of the parent fund and that most of it would have to be written off as a loss, but concealed this from investors and instead falsely claimed it was a "safe product generating an annual return of 3.0%," thereby raising about 121.5 billion KRW. Furthermore, in March 2019, even after the asset management company managing the parent fund was reported to the U.S. Securities and Exchange Commission (SEC) and the difficulty of recovering investments became apparent, Jang sold an additional fund worth approximately 13.2 billion KRW.

Based on these charges, the prosecution applied allegations of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes, fraud under the Criminal Act, and violations of the Capital Markets Act, and indicted CEO Jang in custody. Kim, head of overseas investment at Discovery Asset Management, and Kim, team leader of the management team, were also indicted without detention on the same charges.

However, at the first trial on the 21st of last month, they all denied the prosecution’s charges. Jang’s defense stated, "We deny the intent regarding the charges," and claimed, "There are inaccuracies in the indictment." This was interpreted as meaning they did not recognize the insolvency risk of the parent fund. The defense attorneys for Kim, the head, and Kim, the team leader, also argued, "The defendants did not agree to purchase Quarters Pot (QS) assets at face value, nor did they definitively assure buyers that the principal would be guaranteed given the nature of the fund," adding, "There was no intent to deceive."

In cases of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and the Criminal Act, intentionality is a key factor in determining guilt or innocence. Attorney Jang Joon-sung (Law Firm How) said, "Whether the act was intentional or negligent is an important criterion in criminal trials for fraud," and added, "There have been acquittals based on the absence of intent to deceive from the outset. The Discovery trial will also hinge on this question of intentionality."

The second trial for CEO Jang and others is scheduled for the 25th of this month. Jang’s defense is expected to present detailed opinions on the denied charges to the court. Previously, Jang’s attorney stated, "The records amount to over 20,000 pages, so we have not been able to review them thoroughly," and added, "We will disclose detailed information at the next hearing."

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