Lime case set to lead to suits involving sellers, investors

By Kim Bo-eun

Investors and sellers of investment options managed by Lime Asset Management are gearing up to take legal action as Lime unveiled estimates of investment losses according to an inspection completed earlier this month.

Lime said Monday it estimates losses from its two major funds amounting to over 1 trillion won to reach up to 50 percent, according to accounting firm Samil PricewaterhouseCoopers. Financial authorities will unveil the results of the inspection, Friday.

While figures of the inspection are estimates, investors may lose the entirety of their investments due to total return swap (TRS) contracts that were made between Lime and brokerages.

TRS contracts are an agreement on exchanging the return on reference assets. Hedge funds use TRS contracts to obtain leverage on reference assets.

Under the TRS contract, brokerages are prioritized over investors for retrieving their money.

Lime has proposed consultations between brokerages and entities that sold its investments options, to figure out how much individual investors will be able to retrieve.

But it remains unclear whether brokerages will be willing to take part.

Lime froze redemptions for 1.6 trillion won in funds, after investors sought to withdraw their money following news that financial authorities were looking into the investment firm's risky trading practices last year.

Financial firms including banks and brokerages face allegations of mis-selling investment options managed by Lime.

About 200 cases have been filed with the Financial Supervisory Service for dispute settlement over allegations of mis-selling.

Investors are preparing to file a suit against the banks and brokerages that calls for their contracts for funds managed by Lime to be cancelled, and for their investments to be returned.

Banks and brokerages, however, also see themselves as victims, claiming they sold the investment options not knowing about Lime's unsound investment practices. They too are pursuing legal action against Lime.