$200 Billion Scale US Gas Field Investment Loss... KDB Saengmyeong Sues Meritz

Allegations of Inadequate Investment Information Delivery...Complaint to Be Filed This Week
Meritz: "We Even Accompanied On-Site Due Diligence...Provided Sufficient Information"

Following Lotte Insurance, KDB Life Insurance also participated in a US gas field investment worth around 200 billion won and suffered losses, deciding to file a lawsuit against the arranger Meritz Securities. The reason cited is the alleged negligence in the process of selling and managing the fund by Meritz Securities.

According to industry sources on the 29th, KDB Life Insurance plans to file a lawsuit this week against Meritz Securities and Hana Alternative Investment Asset Management, claiming restitution of unjust enrichment due to contract cancellation and damages for illegal acts violating investor protection duties. KDB Life Insurance argues that Meritz Securities did not sufficiently inform them of the investment risks, resulting in losses. This is essentially a case of 'incomplete sales.'

KDB Life Insurance stated, "During the process of verifying the lawsuit filed by Lotte Insurance last November on the same matter, we determined that Meritz Securities and others did not accurately provide important investment information regarding the special characteristics of the Frontera gas combined cycle power plant project," adding, "Since then, we have been preparing the lawsuit in earnest around mid-this year and plan to submit the complaint this week."

Previously, Meritz Securities established a fund related to the US Frontera gas combined cycle power plant project worth $160 million (approximately 208 billion won) in December 2018. Accordingly, Lotte Insurance and KDB Life Insurance invested $50 million and $30 million respectively in the ‘Hana Alternative Investment US Power Plant Specialized Private Equity Fund No. 2’ in February 2019. Other participants included the Korea Exchange, Kyowon Life, and the Teachers’ Pension. However, the US companies related to the fund declared defaults, and the corporate rehabilitation process ended in August 2021. As a result, Lotte Insurance and KDB Life Insurance suffered total losses just two years and six months after their investments.

In November last year, Lotte Insurance filed a lawsuit against Meritz Securities at the Seoul Central District Court seeking restitution of unjust enrichment, and two hearings have been held so far. Lotte Insurance is proceeding with the lawsuit through the law firm Lin & Associates, while KDB Life Insurance is represented by the law firm DaeRuk Aju. Meritz Securities appointed Kim & Chang as their legal representative.

Lotte Insurance and KDB Life Insurance viewed the gas power plant project as a commercial power generation business with a low proportion of fixed cash flow, considering countermeasures for this as key investment information. They claim that Meritz Securities failed to properly disclose whether collateral structures were arranged in case cash flow was not secured, leading to large-scale losses.

On the other hand, Meritz Securities maintains that they provided all explanations properly, conducted on-site due diligence together with investors, and that it is difficult to accept that experienced institutional investors invested without understanding the investment structure.

Hana Financial Group, KDB Life M&A Possible Conclusion This Week. Photo by Jo Yongjun jun21@

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