'Discovery Redemption Suspension' CEO Jang Ha-won Acquitted in First Trial

CEO Jang Charged with Fraud under Special Act and Capital Markets Act Violations
Court: "Difficult to Prove Knowledge of Irredeemability When Selling"

Jang Ha-won, CEO of Discovery Fund Asset Management, who caused damages amounting to 256 billion KRW due to the suspension of redemptions, is attending the warrant hearing held at the Seoul Southern District Court in Yangcheon-gu, Seoul, last June.
[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Jang Ha-won, CEO of Discovery Asset Management, who caused massive damage to investors due to the suspension of redemption of private equity funds, was acquitted in the first trial.

On the 30th, the 13th Criminal Division of the Seoul Southern District Court (Chief Judge Lee Sang-joo) acquitted CEO Jang and Discovery employees who were indicted on charges including fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and violations of the Capital Markets Act. The prosecution had requested a 12-year prison sentence for CEO Jang at the sentencing hearing held on the 14th. CEO Jang was arrested and indicted in July.

The court stated the reason for the acquittal, saying, "There is no direct evidence that the defendants, knowing the situation of the US asset management company DLI, caused DL Global (DLG) to purchase the poor-quality Quarterspot (QS) loan receivables to help DLI out of its difficult situation," and "It is difficult to recognize the fact that they set up and sold a global bond fund knowing that redemption of the global bond fund was impossible based solely on the DLG asset due diligence report."

CEO Jang is accused of hiding the fact that most of the loan receivables would incur losses and selling the product to about 370 domestic investors. As a result, investors are reported to have suffered losses amounting to approximately 134.8 billion KRW.

At that time, when concerns arose about the suspension of fund redemption due to the poor quality of the underlying loan receivables, CEO Jang established a special purpose vehicle in a tax haven in August 2017. The prosecution believes that he overcame the redemption crisis by purchasing loan receivables worth 55 million USD (about 69.3 billion KRW) at face value through the special purpose vehicle.

Furthermore, as a result of due diligence on the loan receivables in October 2018, it was found that about 70% of them had losses and that principal repayment was not even made, with about 40 million USD out of 42 million USD expected to be lost. However, he is accused of selling the fund to investors despite knowing this. Through this, Discovery Asset Management sold funds worth approximately 121.5 billion KRW.

In addition, in March 2019, although the CEO of the US asset management company was reported to the US Securities and Exchange Commission (SEC) on charges of fraud, making it difficult to recover investment funds, he is also accused of selling products to investors despite knowing this. The prosecution estimates that about 13.2 billion KRW worth of funds were sold through this.

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