[Issue! Q&A] Optimus Investment 'Full Refund'... Will NH Securities Receive a Recommendation?

[Asia Economy Reporter Ji Yeon-jin] The Financial Dispute Mediation Committee (FDM Committee) of the Financial Supervisory Service has decided on a "contract cancellation due to mistake" in the dispute mediation related to the Optimus Fund sold by NH Investment & Securities. Accordingly, it recommended canceling the Optimus Fund sales contracts for two dispute applicants and that NH Securities, the contracting party, return the full principal investment amount. However, it remains uncertain whether NH Investment & Securities, which has previously claimed "joint compensation" along with the trustee and administrative agent, will accept this recommendation.

Q What is the Optimus Fund case about?

A The Optimus Fund is a fraud case where Optimus Asset Management raised 1.5 trillion KRW in 2018-2019 by claiming to invest in construction receivables ordered by public institutions and local governments, but actually invested in bad debts. The amount not yet redeemed is 515.1 billion KRW. Of this, 432.7 billion KRW, or 84%, was sold by NH Investment & Securities. NH Investment & Securities' Optimus investors applied for dispute mediation with the Financial Supervisory Service after the fund suspended redemptions last year. As of the 26th of last month, there were 326 related dispute mediation applications. This recommendation is the result of dispute mediation requested by two NH Investment & Securities investors. They joined after being solicited via text messages containing product information stating that the product was "safe as long as public institutions do not fail." However, the FDM Committee confirmed through investigations of public institutions, local governments, construction companies, and other asset managers that it is practically impossible to include public institution receivables with maturities of 6 or 9 months or longer as major assets in the fund.

Q How does contract cancellation due to mistake differ from incomplete sales?

A Article 109 of the Civil Act stipulates that a declaration of intention can be canceled if there is a mistake in an important part of the legal act's content. The FDM Committee recognized that at the time of contract conclusion by Optimus investors, it was practically impossible for the Optimus Fund to invest in receivables related to public institution construction orders, yet NH Investment & Securities explained through investment proposals that over 95% of the fund would be invested in public institution receivables, causing a mistake in an important part. Without this mistake, the contract would not have been concluded. The FDM Committee judged that it is difficult to mediate disputes as damages from incomplete sales because the loss amount is not yet confirmed due to redemption delays and the responsibility of related institutions has not been determined. Incomplete sales occur when financial investment companies sell financial products without providing basic information and investment risks to customers, and compensation varies depending on the financial company's responsibility. However, contract cancellation due to mistake invalidates the contract, requiring full compensation.

Q Can the remaining Optimus Fund investors receive full refunds?

A This recommendation is the result of dispute mediation requested by two investors who joined the Optimus Fund through NH Investment & Securities. The FDM Committee expects that if this mediation is established, individual investors of NH Investment & Securities' Optimus Fund will receive about 300 billion KRW in principal refunds. However, investors who joined the fund through securities companies other than NH Investment & Securities are not eligible for refunds. For example, Korean Investment & Securities' Optimus investors did not apply for dispute mediation at all. Korean Investment & Securities decided last September to prepay 90% of the principal. However, even investors who received prepayment can receive additional compensation through lawsuits or Financial Supervisory Service dispute mediation.

Q What is the effect of the FDM Committee's recommendation?

A This dispute mediation is established if the applicant and NH Investment & Securities accept the mediation proposal within 20 days after receipt. The establishment of mediation has the same effect as a judicial settlement under Article 39 of the Financial Consumer Protection Act. However, the FDM Committee's recommendation is not binding. If NH Investment & Securities does not accept it, full refunds are impossible. NH Investment & Securities claims that the Optimus Fund redemption suspension was a "fraud" deliberately committed by the asset manager and insists on "multilateral compensation" including Hana Bank as trustee and the Korea Securities Depository as administrative agent. Jung Young-chae, CEO of NH Investment & Securities, hinted at legal action ahead of attending the FDM Committee, stating, "Contract cancellation due to mistake effectively grants exemption to all service providers who should bear responsibility," and that "our legal interpretation of the contract cancellation recommendation is that it is unreasonable."