Securities firms seeking penalty reduction for CEOs over Lime fiasco

By Kim Bo-eun

The lobby of the Korea Financial Investment Association's building on Yeouido in Seoul / Korea Times file

Brokerages are seeking to alleviate the penalties that their CEOs are facing over the mis-selling of funds of Lime Asset Management.

The Financial Supervisory Service (FSS) earlier this month notified Shinhan Investment, KB Securities and Daishin Securities of sanctions former and current chiefs are facing over the case.

The regulator is said to be seeking to impose weighty sanctions that will prevent the former and incumbent CEOs from serving in positions in the financial sector for up to five years.

The FSS will convene a sanctions review committee meeting Thursday, where the CEOs will have the opportunity to defend themselves, and a conclusion will be reached on the penalties that will be levied.

Once the FSS reaches a decision, the view will be forwarded to the Financial Services Commission for finalization.

The Korea Financial Investment Association (KFIA), an interest group representing the interests of local securities firms, is reportedly preparing to submit a petition to the FSS on reducing the penalties.

Both the association and involved brokerages declined to elaborate on the possibility of that happening.

Among the figures facing punitive measures is the KFIA's current chairman, Na Jai-chel, who formerly led Daishin Securities.

The brokerages' stance is that the sanctions are excessive, considering those involved in the Lime case have accepted financial authorities' advice over compensating victims.

They have stated it is unfair that distributors of financial products take on the burden of compensating investors while investment firms that mismanaged the funds are let off the hook.

The three brokerages face CEO penalties in additional to institutional sanctions.

It appears unlikely, however, that the FSS will alleviate sanctions for the brokerage CEOs even if the petition is to be submitted, given the same punishment was imposed on bank CEOs earlier this year for mis-selling financial derivative products referred to as derivative-linked funds (DLFs).

In March, financial authorities levied penalties on Woori Financial Group Chairman Son Tae-seung and Hana Financial Group Vice Chairman Ham Young-joo over their responsibility in the two lenders' mis-selling of DLFs that incurred major losses for investors last year.

The sanctions bar the executives from serving in positions in the financial sector. However, Son and Ham have filed suits to have the sanctions withdrawn and have filed injunctions to prevent the measures from going into effect until a decision is made in the sanctions lawsuits. In both cases, courts accepted the injunctions, allowing the executives to continue serving their terms. Son, who serves as chief of Woori Group, doubled as Woori Bank CEO up until last year.

Both Woori and Hana also compensated victims of the DLFs.

Both brokerages and banks distributed Lime's funds.

Based on investigations, the FSS said distributors were responsible for misleading investors by conveying information in the investment proposals to them without thorough review. Lime's investment proposal was found to have included false information on the rate of return and risks associated with the investments.

In some cases, officials of the distributing firms were found to have identified investors as risk-takers even though they were not.