Rhyme and Shinhan Rivaling Scammers... 'Hiding' Poor Performance and 'Manipulating' Returns

[Asia Economy Reporter Koh Hyung-kwang] Lime Asset Management, which caused a fund redemption suspension crisis involving approximately 1.6 trillion KRW, was found to have concealed the occurrence of defaults in funds it had invested in for several years and manipulated the returns. While customers’ money was incurring losses, Lime employees used internal information to secure large amounts of illicit profits. Shinhan Financial Investment, which lent funds to Lime Asset Management, was also found to have conspired in this.

According to the financial investment industry on the 16th, the Financial Supervisory Service (FSS) recently announced the results of an interim investigation into the loss rates of Lime funds and the company’s illegal activities. The investigation revealed that in May 2017, Lime Asset Management invested in overseas trade finance funds such as the IIG Fund, BAF Fund, Barak Fund, and ATF Fund under the name of Shinhan Financial Investment. The trade finance fund size was about 600 billion KRW, combining approximately 250 billion KRW of customer money managed by Lime and about 350 billion KRW borrowed from Shinhan Financial Investment through a total return swap (TRS) contract with Lime. The TRS contract is a type of loan arrangement where a securities firm purchases assets on behalf of the client and receives fees in return.

In June 2018, Lime Asset Management and Shinhan Financial Investment first recognized that the net asset value (NAV) of the IIG Fund within the trade finance funds was not being calculated. In November 2018, they also received an email stating that the IIG Fund had created fake bonds and that U.S. financial authorities had detected this, initiating liquidation procedures. However, neither Lime Asset Management nor Shinhan Financial Investment disclosed these facts to their customers.

Instead, they arbitrarily adjusted the NAV of the IIG Fund to increase by 0.45% monthly, manipulating the returns. It was also revealed that some Lime employees created dedicated funds and used internal information to invest, earning hundreds of billions of KRW in capital gains.

An FSS official explained, "Despite losses caused by defaults in the investment targets of the trade finance funds raised by Lime Asset Management, they concealed this and arbitrarily manipulated the returns to disguise the funds as normal investments."

The FSS plans to notify the prosecution of Lime Asset Management and Shinhan Financial Investment officials on these charges and proceed with dispute resolution procedures for the victims. To this end, the FSS will form a 'Joint On-site Investigation Team' to begin investigations early next month and plans to prepare victim relief measures through internal and external legal consultations by May. Additionally, the Financial Dispute Mediation Committee will hold sessions to make mediation decisions within the first half of this year.