‘Discovery’ Jang Ha-won Denies Charges… Victims Call It a “Well-Orchestrated Fraud Scheme”

Jang Ha-won "No intention to deceive victims... Not fraud"
Victims "IBK and Discovery Fund colluded in fraudulent scheme"

[Image source=Yonhap News]

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

On the other hand, the victims are urging investigations, claiming that fund distributors such as Industrial Bank of Korea also bear fraud charges.

The Criminal Division 13 of the Seoul Southern District Court (Chief Judge Lee Sang-joo) held the second trial of CEO Jang, who was indicted and detained on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes, fraud, and violation of the Capital Markets Act, at 3 p.m. on the 25th. The hearing for A (42), head of Discovery’s investment division, and B (36), head of the operations team, who were indicted without detention, as well as the corporation, was held simultaneously.

Jang Ha-won: "I am sorry for the victims' losses... We were deceived too"

At the trial, Jang’s defense attorney stated, "The prosecution’s allegations have not been proven and rather contradict objective facts," adding, "We deny all the criminal charges in this case." He continued, "We sincerely apologize for the losses suffered by many victims, but these outcomes were completely unexpected by the defendants, who themselves were deceived and defrauded by the American company."

Regarding accounting manipulation, he argued, "At the time, we did not know the true nature of the American company, and until the incident broke out, it was generating over 10% annual returns. The defendant also sensed the risk after reading foreign news articles and conveyed the intention to cancel fund sales through Hana Bank, but the bank refused," he claimed.

Concerning allegations that they anticipated the suspension of redemption and engaged in 'rolling over' funds, he explained, "The principal and interest of bonds are liabilities, and investment amounts are assets," describing it as "a normal cash flow." He also denied allegations that Jang’s elder brother, former Ambassador to China Jang Ha-sung, was involved in the incident, saying, "There have been repeated mentions of a person with a special relationship, but Jang has never said that his brother is at the Blue House."

[Image source=Yonhap News]

Victims: "A well-scripted plot, a blatant act of fraud"

The victims’ group still believes that CEO Jang had fraudulent intent. The Industrial Bank of Korea Discovery Fund Fraud Victims Countermeasure Committee (hereafter, the Committee) held a press conference in front of the court at around 2 p.m. before the trial, claiming, "The suspension of redemption of the Discovery Fund was a fraudulent act orchestrated by Industrial Bank of Korea and Discovery Asset Management according to a well-scripted plot."

The Committee pointed out, "It was obvious that Discovery and DLG’s financial condition would deteriorate if they acquired toxic non-performing loans, and the guarantee contract for the value of shares owned by the DLI CEO was like 'urinating against the wind' and a game of hot potato. Ultimately, if Jang Ha-won and Elliott Kang did not receive other criminal proceeds or rebates as compensation for acquiring toxic non-performing loan QS, there would have been no reason to engage in a losing business."

They also criticized, "Industrial Bank of Korea either actively participated in Jang Ha-won’s illegal acts or was fully aware of the fraud but avoided action through omission, thus engaging in fraudulent sales. They did not conduct active verification regarding the safety of the Discovery Fund and were obsessed with fraudulent sales by emphasizing safety to customers using false investment proposals from Discovery Asset Management."

Discovery Fund, 134.8 billion won worth of redemption suspended

According to the prosecution, starting in April 2017, CEO Jang sold funds operated by the U.S. asset management company DLI (Direct Lending Investment). When concerns arose about the suspension of redemption due to the deterioration of the underlying C loan assets, he established a special purpose vehicle in a tax haven in August of the same year and resolved DLI’s redemption suspension crisis by purchasing the relevant bonds.

In October 2018, Jang had already anticipated a loss of about 40 million dollars (approximately 52.3 billion won) on the C loan bonds but concealed this fact and sold funds worth about 121.5 billion won to investors. Ultimately, all the sales amount was suspended from redemption.

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

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

In July last year, as investors’ complaints of damages continued, the police began investigations, including imposing a travel ban on CEO Jang and conducting raids on the selling banks. The court issued an arrest warrant on June 8, citing concerns over evidence destruction and flight risk, and the prosecution indicted Jang on the 4th of last month.

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