Is 100% Compensation Possible for the 'Lime Trade Finance Fund'?

[Asia Economy Reporter Ko Hyung-kwang] Financial authorities are reportedly considering a plan to compensate up to 100% of the investment for the 'Lime Trade Finance Fund (Pluto TF-1)', one of the three parent funds of Lime Asset Management whose redemption has been suspended, by applying fraud charges. This is, of course, based on the premise that the distributors continued to sell the fund despite being aware of its insolvency in advance.

According to the Financial Supervisory Service's investigation results on Lime Asset Management on the 18th, Lime Asset Management invested about 600 billion KRW in overseas trade finance funds such as the IIG Fund, BAF Fund, and Barack Fund together with Shinhan Financial Investment in May 2017. Among them, it was discovered that the IIG Fund stopped calculating its net asset value from June 2018, and in November of the same year, it was found that the IIG Fund had created fake bonds and entered liquidation procedures. However, this was not disclosed to investors. The Financial Supervisory Service judged that Shinhan Financial Investment continued to sell the fund as if it were normal even after recognizing the fund's insolvency.

The legal community believes that if a financial company continued to sell a fund to general investors despite being aware of its insolvency in advance, it could be grounds for contract cancellation. Attorney Kim Kwang-jung of the law firm Hangyeol explained, "Cases where fund products have been canceled through litigation are rare, but if it is recognized that the distributor proceeded with sales while being aware of the insolvency in advance, cancellation could be possible."

It is uncertain whether the date the distributor became aware of the insolvency was June 2018, when the IIG Fund's net asset value was not calculated, or November 2018, when they received an email stating that the IIG Fund was entering liquidation procedures, but funds sold after that could be eligible for 100% compensation.

The total amount set for the trade finance funds sold under the Lime name is 243.8 billion KRW, with 38 sub-funds. The financial company that sold the most of these trade finance funds was Shinhan Financial Investment, selling a total of 88.8 billion KRW. Woori Bank (69.7 billion KRW) and Hana Bank (50.9 billion KRW) also sold more than 50 billion KRW each. The sales amount of these three financial companies accounts for 209.4 billion KRW, which is 86% of the total sales amount.