'Negligence in Lime Fund Supervision' Shinhan Investment Corp Fined 50 Million Won in First Trial

Shinhan Investment Corp. was fined 50 million won for negligence in supervisory duties related to the sale of the 'Lime Fund'.

On the 15th at 2 p.m., Judge Lee Geun-soo of the Criminal Division 3 at Seoul Southern District Court sentenced Shinhan Investment Corp., indicted for violating the Capital Markets Act and the Financial Investment Services and Capital Markets Act (hereinafter referred to as the Capital Markets Act), to a fine of 50 million won. The court acquitted the company of charges related to violations of the Capital Markets Act due to unsound business practices but found it guilty of charges related to fraudulent unfair trading activities.

Shinhan Investment Corp. is accused of neglecting its duty of care and supervision while Im Mo, former head of the PBS Business Division, concealed fund insolvency and sold 48.2 billion won worth of overseas trade finance funds to investors. Shinhan Investment Corp. was subject to the dual punishment provision, which punishes both the perpetrator and the corporation for illegal acts. Im was sentenced to eight years in prison by the Supreme Court in December 2021.

Regarding the charges of violating the Capital Markets Act due to unsound business practices, the court stated, "If Shinhan Investment Corp. is punished under the dual punishment provision for the unsound business practices jointly executed by Im and Lime Asset Management, it would unjustly recognize the corporation's criminal capacity," citing Supreme Court precedents and acquitting the company.

For the charges related to fraudulent unfair trading under the Capital Markets Act, the court considered that the increase in Im's incentives, which reflected the previous year's business performance, could have been a motive for his crime. The court said, "While Im's salary did not change significantly, his incentives in 2018 sharply increased compared to before," adding, "This was because the PBS Business Division generated significant profits in 2017 by entering into swap contracts with Lime Asset Management funds."

It continued, "It appears that Im's motive for participating in fraudulent unfair trading was to obtain incentives, and judging by the incentive calculation method, the defendant company seems to have gained considerable profits from Im's actions," concluding, "Im's actions can be seen as acts for the benefit of the defendant company."

The court also stated that adequate care and supervision to prevent Im's violations could not be confirmed. It noted, "The defendant company apparently had no institutional mechanism to verify when a business division arbitrarily entered unofficial prices, as in this case." The court added, "Despite the fund proposal documents containing false information, the fund was sold without correction."

Regarding sentencing considerations, the court ruled, "We considered that the defendant company made efforts to compensate damages by returning investment amounts to all but one investor and significantly improved its business processes to prevent recurrence of the incident."

In December last year, the prosecution requested a fine of 200 million won for Shinhan Investment Corp. during the closing arguments.

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