Falsehoods, Deficiencies, and Loss Compensation Agreements... The Chaotic Scene of Illegal Lime Fund Sales

[Asia Economy Reporter Koh Hyung-kwang] The decision to provide '100% compensation' to victims of the Lime Asset Management trade finance fund, which caused a large-scale redemption suspension crisis, was made because serious illegal activities were revealed during the fund's sale. Not only was the deteriorated fund introduced as a stable fund, but the investor profile was arbitrarily recorded as 'aggressive investment type,' and a loss compensation agreement was even drafted, revealing various illegal acts during the sales process.

According to the Lime fund sales cases disclosed by the Financial Supervisory Service on the 1st, Mrs. A, a woman in her 70s, visited a bank last March to check the deposit details of her insurance payout. A bank employee recommended the trade finance fund, emphasizing it was a safe product insured, and she subscribed to the product without much suspicion.

However, at the time of sale, 83% of the invested principal was already impaired. The bank employee explained and provided the investment proposal, which Lime had falsely and inadequately prepared, and arbitrarily recorded Mrs. A’s investor profile as an aggressive investor despite her lack of investment experience. The pre-approval procedure to protect elderly investors was not followed, and Mrs. A was made to invest 100 million KRW of her retirement funds into the impaired fund.

Mr. B, a worker in his 50s, visited the bank in July last year requesting a safe product that could be managed for one year. The bank employee recommended the Lime trade finance fund, saying it was safe because it was insured. The next day, after seeing news about a prosecution investigation into Lime, Mr. B sent a worried text message to the bank employee. However, the bank employee replied that "the asset management company and the trustee are separated, so there is no impact on the fund assets," and Mr. B ultimately subscribed to the fund.

However, at the time of sale, 98% of the invested principal was already impaired. The bank employee explained and provided the investment proposal, which Lime had falsely and inadequately prepared, and arbitrarily recorded Mr. B’s investor profile as an aggressive investor, leading him to invest 200 million KRW into the impaired fund.

The C Scholarship Foundation, which had only invested in fixed deposits for five years since its establishment, faced a maturity of a fixed deposit in November 2018. Employee Mr. D visited the bank to consider subscribing to a new product. The bank employee introduced a securities company employee from the same financial holding group through the asset management service complex branch, recommending a product with a higher interest rate, and the securities company employee sold the trade finance fund to the scholarship foundation.

However, at the time of sale, 76% of the invested principal was already impaired. The securities company employee explained and provided the investment proposal, which Lime had falsely and inadequately prepared, and arbitrarily recorded the investor profile as an aggressive investor, leading the scholarship foundation to invest 1.1 billion KRW of its principal assets into the impaired fund. After subscribing to the fund, when the scholarship foundation’s board raised concerns about the principal assets, which are the source of scholarships, being invested in a high-risk securities product, the bank employee who initially introduced the securities company employee drafted a loss compensation agreement promising compensation in case of principal loss. However, no compensation was made after the redemption suspension.