Court to Hold Intensive Hearings on 'Discovery Incident' on Nov 11 and 13... Practitioners to Testify

3 Discovery Employees and 2 Hana Bank Employees to Testify
Expected to Describe Fund Sales Process and Circumstances During Redemption Suspension Incident

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Byung-don] The trial of 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 redemptions of private equity funds, is expected to enter a full-scale battle over the truth starting next month. Those responsible for selling the funds are scheduled to testify in court about the sales process.

The Criminal Division 13 of the Seoul Southern District Court (Chief Judge Lee Sang-joo) held the third hearing on the 5th at 2 p.m. for Jang, who was indicted in custody on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes, fraud, and violation of the Capital Markets Act. The court also held hearings 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 for the corporation.

During the trial, a fierce dispute over the admission of evidence ensued between the prosecution and the defense, as the defense objected to a significant portion of the evidence presented by the prosecution.

Ultimately, the prosecution applied to call those who were directly involved in the sale of Discovery funds as witnesses at the next hearing, and the court accepted the request. Three mid-level staff members at Discovery Asset Management, including department heads and managers, and two Hana Bank employees who sold Discovery funds were selected as witnesses. Some of these individuals had previously been investigated as reference witnesses during the police investigation phase.

The court scheduled witness examinations for two days, on the 11th and 13th of next month, holding sessions at 10 a.m. and 2 p.m. respectively.

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

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

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

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

In July last year, as investors continued to report damages, the police began an investigation, including imposing a travel ban on Jang and conducting a search and seizure of the selling bank. On June 8, the court issued an arrest warrant citing concerns over evidence destruction and flight risk, and the prosecution indicted Jang last month on the 4th.

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