Financial authority finds cartel in probe involving asset management firms

Financial Supervisory Service (FSS). [Photo by Han Joo-hyung]

South Korea’s financial regulator announced Thursday the results of an additional investigation into three private asset management companies - Lime, Optimus, and Discovery - that have been at the center of a massive financial fraud scandal in the country. They have been continuously suspected of having direct or indirect connections with influential figures of the previous administration.

According to the Financial Supervisory Service (FSS), Lime Asset Management Co. had engaged in preferential redemptions with lawmakers and some institutions shortly before suspending redemptions in 2019, using funds from other funds worth 12.5 billion won ($9.4 million) and the company’s own funds (450 million won).

The lawmaker mentioned in connection with the preferential redemption was identified as Kim Sang-hee, a four-term lawmaker of the opposition Democratic Party.

Kim denied the allegation saying that she “lost tens of millions of won by entrusting assets to Mirae Asset Securities Co.” but she did not engage in preferential redemptions.

“Mirae Asset Securities advised all customers, including myself, who invested in funds like Lime Martini No. 4, to consider redemptions based on market conditions. I will hold the Financial Supervisory Service accountable for describing it as a preferential redemption,” she said.

The National Agricultural Cooperative Federation (NACF) was also found to have redeemed 20 billion won in advance. NACF explained that the decision to retrieve the investment was due to the widely recognized risk of insolvency.

NACF invested 20 billion won in Lime Saturn Fund in February 2018, with a final return of minus 21.88 percent.

The Lime incident is considered the largest-ever financial fraud scandal in history, with investor losses reaching 1.6 trillion won when the asset management firm suspended redemptions in October 2019.

The key suspect in the incident Kim Bong-hyun, former chairman of small industrial robot manufacturer Star Mobility, was sentenced to 30 years in prison and Lee Jong-pil, former vice president of Lime Asset Management, to 15 years in prison, with the second trial underway.

It was also confirmed that about 200 billion won was embezzled from five listed and unlisted companies that received investments from Lime Asset Management in the form of convertible bonds (CB) and bonds with warrants (BW).

“We notified the prosecution that the embezzled funds seem to have flowed into illegitimate channels,” said Ham Yong-il, deputy governor of the FSS. “Where they ultimately flowed to and how they were used is the domain of the prosecution’s investigation.”