By Kim Bo-eun
The Financial Supervisory Serviced (FSS) has come under fire for mishandling the irregular practices of Lime Asset Management, which is incurred snowballing losses for financial firms as well as individual investors.
Lime Asset Management has continued to make headlines since last year, for alleged irregularities in trading practices, and the suspension of withdrawals from a number of private equity funds.
Banks and brokerages that sold the investment options have come under scrutiny, but the financial authorities undoubtedly bear some of the blame for failing to prevent the damage from occurring.
After Lime's suspected irregularities including stock parking surfaced in July, the FSS conducted an inspection on the hedge fund manager from August through October last year.
In October, Lime stated it would freeze redemptions of funds amounting to 1.33 trillion won. The FSS also looked into the funds, but no subsequent measures were taken.
In December, it was unveiled that Lime's funds invested in a U.S. hedge fund whose assets were frozen for fraud.
Authorities suspected Lime continued to sell option-based funds to investors despite being aware of the situation surrounding the U.S. hedge fund.
They also suspected that Lime continued to pay investors returns with funds from new investors.
In the meantime, Lime stated Wednesday it may restrict the redemption of 16 more option-based funds which reach maturity starting in late March.
The funds investors may be unable to withdraw what are known to be sound options Lime used to pay investors in troubled funds.
Apart from Lime, banks are facing suits from investors who claim the sellers of Lime's options engaged in mis-selling. This comes after lenders were hit by the "DLF fiasco," which involved the mis-selling of derivative linked funds (DLFs) that caused major losses to investors. Banks have contended they are victims in the Lime case as they were unaware of the practices of the hedge fund.
The financial authorities were criticized last year when the DLF case unfolded for failing to carry out its role in ensuring financial firms had proper internal control systems.
They have mostly remained quiet about the situation surrounding Lime, only stating that an inspection entrusted to Samil PricewaterhouseCoopers (PWC) will be completed in late January of early February.
In the meantime, 100 investors have applied for dispute settlement regarding Lime's funds with the FSS.
Regulations were relaxed in 2015 by lowering the minimum for investing in a hedge fund, leading to assets under management by the local industry to grow more than 10-fold to 35 trillion won as of July last year.
With the easing of regulations should have come an increase in the authorities' monitoring of the market, but the Lime case only shows their failure to ensure market stability and protect investors.
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| The Financial Supervisory Service headquarters on Yeouido, Seoul / Korea Times file |
Lime Asset Management has continued to make headlines since last year, for alleged irregularities in trading practices, and the suspension of withdrawals from a number of private equity funds.
Banks and brokerages that sold the investment options have come under scrutiny, but the financial authorities undoubtedly bear some of the blame for failing to prevent the damage from occurring.
After Lime's suspected irregularities including stock parking surfaced in July, the FSS conducted an inspection on the hedge fund manager from August through October last year.
In October, Lime stated it would freeze redemptions of funds amounting to 1.33 trillion won. The FSS also looked into the funds, but no subsequent measures were taken.
In December, it was unveiled that Lime's funds invested in a U.S. hedge fund whose assets were frozen for fraud.
Authorities suspected Lime continued to sell option-based funds to investors despite being aware of the situation surrounding the U.S. hedge fund.
They also suspected that Lime continued to pay investors returns with funds from new investors.
In the meantime, Lime stated Wednesday it may restrict the redemption of 16 more option-based funds which reach maturity starting in late March.
The funds investors may be unable to withdraw what are known to be sound options Lime used to pay investors in troubled funds.
Apart from Lime, banks are facing suits from investors who claim the sellers of Lime's options engaged in mis-selling. This comes after lenders were hit by the "DLF fiasco," which involved the mis-selling of derivative linked funds (DLFs) that caused major losses to investors. Banks have contended they are victims in the Lime case as they were unaware of the practices of the hedge fund.
The financial authorities were criticized last year when the DLF case unfolded for failing to carry out its role in ensuring financial firms had proper internal control systems.
They have mostly remained quiet about the situation surrounding Lime, only stating that an inspection entrusted to Samil PricewaterhouseCoopers (PWC) will be completed in late January of early February.
In the meantime, 100 investors have applied for dispute settlement regarding Lime's funds with the FSS.
Regulations were relaxed in 2015 by lowering the minimum for investing in a hedge fund, leading to assets under management by the local industry to grow more than 10-fold to 35 trillion won as of July last year.
With the easing of regulations should have come an increase in the authorities' monitoring of the market, but the Lime case only shows their failure to ensure market stability and protect investors.
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