[The Editors' Verdict]Reinvestigation of the Three Major Fund Scandals: Where Will the Fallout Land?

Allegations of Favoritism Toward Moon Jae-in Administration Figures
Potential to Become a Major Political Issue Ahead of the General Election

The Financial Supervisory Service (FSS) announced that following an additional inspection of Lime, Optimus, and Discovery Asset Management the previous day, it uncovered illegal activities such as fund recycling for specific individuals, embezzlement of fund money, and executives pursuing personal gains. This raises new allegations of wrongdoing in the three major fund corruption cases that had previously sparked suspicions of leniency during the Moon Jae-in administration.

The Lime incident occurred in July 2019 when suspicions arose that Lime Asset Management was manipulating returns through irregular trading of convertible bonds (CBs) of KOSDAQ companies. This led to a crash in the stocks held by funds managed by Lime Asset Management, resulting in a suspension of redemptions. The FSS revealed that just before the redemption suspension declaration in October 2019, Lime returned 200 million KRW in advance to a senior incumbent member of the National Assembly during August-September, and also provided preferential redemptions amounting to 20 billion KRW to A Central Association and 5 billion KRW to one listed company.

The Optimus scandal, which broke out the following year in 2020, involved investments in supposedly safe trade receivables guaranteed by public institutions and local governments. However, in reality, the funds were invested in private bonds of insolvent companies with no actual business, causing damages amounting to several hundred billion KRW. According to the FSS announcement, a fund management director of a public institution received a bribe of 10 million KRW in exchange for investing in the Optimus fund and registered his child as an employee of an Optimus affiliate to receive a salary.

The Discovery fund scandal involved deceiving investors by investing in distressed U.S. peer-to-peer (P2P) loan receivables, leading to a suspension of redemptions amounting to 250 billion KRW in 2019. When an existing special purpose company (SPC) invested overseas became insolvent, new funds invested in another overseas SPC were used to repay the existing fund in a recycling scheme. The key figure in the Discovery fund scandal, Jang Ha-won, CEO of Discovery Asset Management, is the younger brother of Jang Ha-sung, former Blue House Chief of Policy. According to the FSS, employees of Discovery Asset Management used undisclosed information to generate personal profits.

Notably, during these incidents, suspicions of involvement or collusion by Blue House or Democratic Party figures were raised, but there were continuous criticisms that the truth was not properly investigated and the cases were ambiguously settled. For example, then Minister of Justice Choo Mi-ae faced allegations of leniency after dissolving the Securities Crime Joint Investigation Team at the Seoul Southern District Prosecutors' Office, which was investigating the Lime case.

The FSS’s reinspection, which confirmed numerous illegal acts belatedly, is significant. Previous FSS inspections had only uncovered corruption at asset management and sales companies, far removed from suspicions involving influential figures of the previous administration. Given that thousands of investors suffered massive losses, it is only right to thoroughly investigate and reveal the substantive truth. It is also time to reexamine whether safeguards that can fundamentally prevent financial corruption or fraudulent transactions are functioning properly.

However, the capital market views the FSS’s recent announcement as heavily politically motivated. The FSS had previously made a clever decision of ‘contract cancellation due to error,’ which allowed investors to recover their principal investments in the Lime trade finance fund and Optimus fund. Although other illegal matters have now been revealed, it remains uncertain whether the affected parties will receive additional compensation.

The FSS cannot be free from criticism that past inspections were inadequate or that inspection results varied drastically depending on the administration. Unlike previous times when allegations reported to the prosecution were kept confidential, this time the FSS made a detailed public announcement, which is unusual. Especially with the general election just months away, the timing of this reinspection announcement is notable, coinciding with the tenure of Lee Bok-hyun, an inspection expert and a close associate of President Yoon Suk-yeol, as FSS Governor. It is hoped that a transparent and impartial investigation will prevent this issue from escalating into an unwarranted political controversy.

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