Blame game escalates between NH Investment and KSD over Optimus fiasco

Two key officials from Optimus Asset Management walk past reporters for a hearing held to determine the validity of arrest warrants sought for them at the Seoul Central District Court in southern Seoul, Tuesday. They were arrested for fraud and violating the Capital Market Law. Korea Times file

By Lee Kyung-min

The scandal-ridden Optimus Asset Management's expected failure to return over 535 billion won ($447 million) to investors was developing into a full-blown war of accusations between the Korea Securities Depository (KSD) and NH Investment and Securities, Thursday.

The investment subsidiary of NH Financial Group was the top seller of financial products through which Optimus drew funds from investors. It attracted over 477.8 billion won, accounting for nearly 90 percent of the total.

The KSD was the appraiser of assets and investments pooled from Optimus, also functioning as a provider of the accounting system needed for record keeping.

The scandal was initially over suspected document forgery by Optimus which had the KSD change the names of underlying assets from accounts receivables issued by state-run organizations with robust financing to bonds payable issued by five non-listed firms with unsound financing.

But the focus later turned to the culpability of the KSD for making changes without verifying data for possible fraud, which NH Investment considers an issue of “failed due diligence.”

The KSD said it did not technically change the names and only entered ones given by Optimus in the e-accounting system, stressing that it had no responsibility to verify data from asset management firms.

The move, seeking to distance itself from any blame, came weeks after NH Investment & Securities CEO Jeong Young-chae said June 24 that the firm's in-house investigation “found the KSD logged the underlying assets with changed names in the product appraisal sheet at the direction of Optimus,” in clear remarks assigning blame for what he considers a dereliction of duty.

The criticism is in part justified, some said, because sellers of financial products under the current system are unable to receive detailed information from asset management firms including underlying assets or changes made to investment portfolios. This is why they have no way of verifying the appraisal sheet and rely solely on materials from the KSD.

The KSD maintains the rules were set by the Korea Financial Investment Association (KOFIA), and it therefore should not be held liable. “We do not make the rules, we just follow them,” a KSD official said.

The KOFIA said 10 percent of appraisers do not have the responsibility to verify data, and the KSD is one of them. “Under the law, some are not responsible to go over all data provided by asset management firms. Whether to implement stringent measures will be up for discussion,” a KOFIA official said.