No more mis-sold funds

The Financial Dispute Settlements Committee has told banks and brokerages to fully return the principal of investments to customers of mis-sold funds run by Lime Asset Management.

This is the first time for the arbitration panel, under the Financial Supervisory Service (FSS), to decide that financial companies have to return 100 percent of the principal to their customers. The unprecedented decision shows that deception of investors practiced by fund managers has reached an unacceptable level. If the fund managers and sellers had duped and deceived innocent investors, it is only natural they should pay the due price.

Lime Asset Management and Shinhan Finance and Investment created the fund product in question and invested in five foreign trade finance funds, including the International Investment Group (IIG). However, IIG incurred massive losses, and the two fund managers first learned of it in November 2018. Ordinary managers would have informed investors of such losses and stopped selling the product. Lime Asset Management did the opposite, however. It falsified primary information, such as investment yields, risks and repurchasing status, in investment proposals and provided them to banks and brokerages.

Korea’s private equity fund market has grown rapidly since the government relaxed regulations in 2015. Still, “financial incidents” related to it have also occurred one after another.

Following Lime Asset Management, the financial regulator has also suspended the business of Optimus Asset Management, which discontinued fund redemptions worth about 100 billion won ($83 million) after incurring heavy losses. The ongoing problems are due mainly to the poorly-managed private equity funds (PEF). However, the regulatory authorities can hardly be free from responsibility for the fledgling hedge funds’ inadequate supervision.