Korea Investment faces triple whammy
Korea Investment & Securities may face setback in achieving its grand scheme of being the nation’s first brokerage firm that posts a 1 trillion won ($844 million) annual operating profit, as it has been involved in a series of scandals recently.
The company is facing growing criticism for its employee’s involvement in dubious investments made by Justice Minister Cho Kuk’s family.
According to industry sources, the Seoul Central District Prosecutors’ Office has been investigating a Korea Investment & Securities private banker surnamed Kim, 37, on charges of destroying evidence showing suspicious investments made by Cho’s wife.
The prosecutors also raided the firm’s private banking center in Yeongdeungpo, Sept. 5, to confiscate computer hard disks and key internal documents concerning the assets management of Cho’s family.
On top of the prosecutors’ investigation, Korea Investment & Securities has been under a National Tax Service audit which will continue through October at the brokerage’s headquarters on Yeouido, Seoul.
Although the tax agency and the firm said the ongoing tax inspection is part of a regular audit, some observers expect an intensive inspection, considering the company’s link with Cho’s family.
Korea Investment & Securities CEO Jung Il-mun told reporters Sept. 9, “The private banker may have tried to do his best,” adding, “As you know, every salesman does his best.”
Another unfavorable factor facing the brokerage is its failed investments of the nation’s employment insurance fund in derivatives-linked funds (DLFs) comprised of derivatives-linked securities (DLSs) tied to yields on German Treasury bonds.
It suffered a 47.6 billion won ($40 million) loss in July, as it had invested 58.4 billion won from the employment insurance fund in the DLFs a year earlier.
Because of the failure, the securities firm is feared to lose its right to manage the employment insurance fund.
Furthermore, FSC Chairman Eun Sung-soo said during his confirmation hearing Aug. 29 that he would inspect the company to find out whether it was responsible for the huge loss.
His remarks hinted that the financial regulator may inspect the securities firm in the near future.
The Financial Consumer Agency has already urged financial authorities to carry out an investigations of the firm, using special law-enforcement officers.
CEO Jung said, however, “A rotten part of an apple does not mean the whole part is rotten,” emphasizing its management of the employment insurance fund has generated a 3 percent return, despite the loss.
Meanwhile, the brokerage is also grappling with its holding firm’s difficulties in unloading its stake in Kakao Bank.
Since Kakao was allowed in July to be the biggest shareholder of the internet-only bank, Korea Investment Holdings, the brokerage’s holding firm, has been supposed to reduce its stake in the bank to 34 percent minus 1 share from 58 percent.
Although Korea Investment & Securities was supposed to acquire shares in its holding firm, there has been a glitch in the plan, due to a monetary penalty the brokerage firm was hit with in 2017 for its violation of the Antitrust Law.