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| From left are Woori Bank CEO Son Tae-seung, Shinhan Bank CEO Jin Ok-dong and KEB Hana Bank CEO Ji Sung-kyoo. / Korea Times file |
By Park Jae-hyuk
Woori, Shinhan and KEB Hana banks and 13 other sellers of Lime Asset Management's troubled option-based funds are preparing to take legal action against the nation's largest hedge fund, according to industry officials, Sunday.
Their move is seen as an attempt to avoid taking responsibility for apparent investor losses.
The remaining 13 sellers are the Industrial Bank of Korea (IBK), Busan Bank, Kyongnam Bank, Shinhan Investment, KB Securities, Daishin Securities, Mirae Asset Daewoo, NH Investment & Securities, Shinyoung Securities, Korea Investment & Securities, Yuanta Securities, Hanwha Investment & Securities and Samsung Securities.
The banks and the brokerages said they will take every possible measure, including filing a criminal suit, if inspections by the Financial Supervisory Service (FSS) and Samil PricewaterhouseCoopers (PWC) find allegations against Lime to be true.
In October 2019, they organized a taskforce when Lime announced it would suspend the redemption of private equity funds worth 1.33 trillion won ($1.12 billion) and several other funds worth 620 billion won invested in private bonds and Mezzanine instruments ― a hybrid of debt and equity capital.
As suspicions arose over Lime's liquidity shortage because of the measure, the taskforce members had Samil PWC inspect assets the hedge fund owns.
It is also suspected that Lime continued to sell fund options to investors despite allegedly being aware of the fact that the options involved a U.S. hedge fund that engaged in fraud.
Samil PWC was initially supposed to announce the results of its inspection this week, but delayed the announcement to later this month. The FSS also postponed the announcement of the results of its investigation.
"We are waiting for results of the investigation into Lime to be unveiled. We will decide on what to do afterward," a bank official said on condition of anonymity.
"We have found, however, some differences in the structure of options that Lime initially proposed and the options that were actually sold. We are seeking legal advice on the matter and may take legal action in the case this is deemed necessary."
The sellers are trying to use the possible legal action to prove their innocence.
Investors have claimed the sellers are accomplices to the alleged financial fraud involving Lime, saying they could be aware of the fact that the options invested in involved a U.S. hedge fund that engaged in fraud.
In this regard, Shinhan Investment and Woori Bank were accused of fraud Friday.
"As they continued to sell Lime's funds, investors faced bigger losses," said local law firm Hannuri representing the investors.
The sellers have claimed they are also victims of Lime, saying they were unaware of the fact that the investment options involved the U.S. hedge fund that engaged in fraud.
The Financial Investment Services and Capital Markets Act bans asset management firms from exchanging detailed information about funds with sellers.
"It is hard to imagine the sellers intentionally collaborated with Lime's illegal acts and sold the fund to investors," another bank official said.
Financial industry officials expect it will take a long time for the Lime fiasco to be settled, because the asset management firm, sellers and investors are playing the blame game to minimize their losses.
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