Son Tae-seung, Chairman of Woori Financial Group, Reprimanded... "Excessive Discipline" vs. "Reappointment Controversy"

Financial Services Commission imposes severe disciplinary action on Chairman Son for Lime Fund responsibility
Directors urged to file lawsuits for suspension of effect and cancellation of discipline
Facing the government agency Financial Services Commission is a burden factor

Son Tae-seung, Chairman of Woori Financial Group

[Asia Economy Reporter Song Seung-seop] As Sohn Tae-seung, chairman of Woori Financial Group, received a severe disciplinary action for his responsibility in the Lime Asset Management scandal, discussions about his reappointment have emerged in the financial sector. This is because he must overcome two reprimands and the issue differs from the Derivative Linked Fund (DLF) case, requiring him to contest the government in court.

According to the financial sector on the 10th, the Financial Services Commission (FSC) issued Sohn Tae-seung a disciplinary action equivalent to a reprimand yesterday regarding the Lime Asset Management private equity fund redemption suspension incident. This is the third highest level among the five levels of disciplinary measures for financial company executives. From the reprimand level, employment in financial companies is restricted for 3 to 5 years, making reappointment practically impossible. Sohn’s term ends in March next year.

The Lime fund scandal occurred in July 2019 when suspicions arose that Lime Asset Management was manipulating returns improperly, causing the fund’s stock prices to plummet and redemptions to be suspended. The damage amounted to approximately 1.6 trillion KRW.

There is speculation in the financial sector that Sohn will initiate legal proceedings. Although he received a reprimand during the DLF scandal, he managed to obtain rulings in the first and second trials that the disciplinary decision was unfair. That case is currently awaiting the Supreme Court’s final decision. If Sohn contests the Lime disciplinary action, he will have to temporarily suspend the disciplinary effect through an injunction lawsuit and then proceed with a cancellation lawsuit, as he did with the DLF case. Internally, there are reactions that the financial authorities have "once again imposed excessive disciplinary measures."

However, there are also views that Sohn’s attempt at reappointment will not be easy. Since he has received two reprimands, his internal and external image and the stability of his tenure as CEO may decline. A financial sector official said, "It will be difficult for the members of the Executive Candidate Recommendation Committee (ECRC) to readily accept the argument to pursue another lawsuit," adding, "There is indeed fatigue within the group due to consecutive disciplinary actions and lawsuits, so opposition is likely stronger than before."

Obstacles Everywhere for Reappointment... New Outside Directors’ Intentions Also a Variable

It is reported that when Sohn received a severe disciplinary action for the DLF scandal in 2019, the ECRC also deliberated extensively. At that time, Jang Dong-woo, chairman of the ECRC, recommended Sohn as the sole candidate for the next CEO, citing "minimizing customer damage" and "sincere response," but also said, "There is a burden as customer compensation and disciplinary hearings remain."

The fact that Sohn must sue the government is also a burden. In the DLF case, the decision was made by the Financial Supervisory Service (FSS) through delegated authority, but the Lime disciplinary action was resolved by the FSC. Although both are financial authorities, the FSC belongs to a government agency. One official said, "Financial companies should not offend the government’s sensibilities and should align well with the atmosphere," adding, "It would not be good for the group to get involved in a lawsuit with the government in the current situation."

Although both are reprimands, there are points that the DLF and Lime fund cases differ in nature and degree of responsibility. The DLF disciplinary action focused on Woori Bank’s violation of the duty to explain during the incomplete sales process. The actor was a head of a department at headquarters, and Sohn’s disciplinary reason was "violation of the duty to establish internal controls." Whether the failure of internal controls can be considered a violation of the duty to establish them is controversial. On the other hand, the Lime fund scandal, while also an incomplete sales case, mainly involved "violation of the prohibition on unfair solicitation." Since the actor was a deputy head of headquarters, the financial authorities judged that the then chairman Sohn was responsible. According to the Capital Markets Act and the Corporate Governance Act, when taking action against executives, those with supervisory responsibility can also be disciplined.

A variable is the intentions of the new outside directors newly added to the group earlier this year due to Woori Financial’s privatization. The Woori Financial ECRC consists of nine directors in total, including seven outside directors led by Chairman Jang Dong-woo. Outside director Shin Yo-hwan was recommended by Eugene Private Equity (Eugene PE), which acquired more than 4% of the deposit insurance corporation’s shares and became a major shareholder, and outside director Yoon In-seop was recommended by Fubon Life, an existing shareholder.

Woori Financial issued an official statement yesterday saying, "There are currently no confirmed matters regarding future response plans," and "We will carefully review the relevant details and respond accordingly."

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