Hana Bank vows to cooperate with prosecutors over funds fiasco

By Lee Kyung-min

Hana Bank, one of the country's leading commercial banks, said Friday it will cooperate with local prosecutors over the bank's alleged involvement in the “mis-selling” of investment funds.

On Thursday, prosecutors launched an investigation into the bank over its alleged mis-selling of over 150 billion won ($126 million) in investment funds, in the latest development of the fiasco concerning what buyers say were fraudulent “financial products” irresponsibly sold by the lender. Hana is facing charges of fraud and violations of the Capital Markets Act.

A team of investors and prosecutors with the Seoul Southern District Prosecutors' Office searched the headquarters of the bank in downtown Seoul, and seized documents related to the sales records of the funds in question. Hana bank is the second subsidiary of Hana Financial Group to come under investigation following Hana Financial Investment.

The financial products were designed to invest in account receivables held by hospitals in Italy to be paid for by regional governments there. Most of the funds were sold by Hana between 2017 and 2019. A group of buyers of the funds say about 500 people were defrauded out of a combined 152.8 billion won due to an outright redemption failure in late 2019, following months of delays in redemption filing requests.

A few hours after the prosecutors searched the headquarters, the group held a press conference and demanded a swift investigation by the prosecution.

In July last year, the victims of the fraud filed a complaint with the district prosecution office against the bank, its sales officials, seven asset management firms and three brokerages that dealt in total return swap (TRS) trading, for fraud. A TRS is an agreement on exchanging the return of reference assets. Hedge funds use it to obtain leverage on reference assets seeking greater returns.

The case was briefly referred to Seoul Metropolitan Police Agency for about two months, following the same complaint filed by the victims with the agency in September. The victims sought a police investigation over a year after they filed the first complaint with prosecutors, saying the prosecution investigation was not making any progress.

The Hana financial investment subsidiary, the Industrial Bank of Korea and Korea Investment & Securities were searched by the police agency in July over redemption failures following the sale of Discovery Funds. The three sold the fund between 2017 and 2019, but failed to redeem investors money, causing them hundreds of billions of won in losses.