Woori Financial to Announce Lime Lawsuit and Sohn Tae-seung Reappointment Before Nomination Committee Meeting

Sangyong Park, Outside Director: "Reappointment and Litigation Decisions Are Chairman Son's"
First Nominating Committee on the 18th to Elect Next Chairman of Woori Financial Group

[Asia Economy Reporter Kwon Hyun-ji] Woori Financial Group will hold its first Executive Recommendation Committee meeting on the 18th to select the next chairman. There are three key points to watch: 'Who is the next chairman candidate for Woori Financial Group?' 'Will Son Tae-seung, chairman of Woori Financial Group, file an administrative lawsuit against the Financial Services Commission's heavy disciplinary decision related to the Lime Fund incident?' and 'Will Chairman Son dispel the disciplinary risk and challenge for reappointment?'

Park Sang-yong, an outside director of Woori Financial Group, said that both the lawsuit and the reappointment issues will be decided before the recommendation committee meeting on the 18th. In a phone interview with Asia Economy on the 13th, Director Park said, "Before the recommendation committee, Chairman Son will make a final decision regarding the Lime Fund lawsuit and also announce his intention to challenge for reappointment."

He added, "Although officially the company only needs to report to the board when filing a lawsuit, at least the consent of the directors is necessary and their opinions will be sought when deciding to sue the financial authorities," and emphasized, "However, reappointment or lawsuit decisions are ultimately made by Chairman Son himself."

At this recommendation committee meeting, the board will create a 'long list' by narrowing down a total of 10 candidates, including external candidates recommended by two headhunter firms and internal candidates such as representatives of major affiliates.

Internally, candidates such as Chairman Son, Lee Won-duk (President of Woori Bank), and Park Hwa-jae (President of Business Support at Woori Financial Group) have been mentioned. Former executives including Kim Yang-jin, former Senior Executive Vice President of Woori Bank, and Nam Ki-myung, former Executive Vice President of Woori Bank, are also being discussed. Externally, Im Jong-ryong, former chairman of the Financial Services Commission, and Cho Jun-hee, former president of Industrial Bank of Korea, are among the prospects.

Son Tae-seung, Chairman of Woori Financial Group, is attending the Ministry of Economy and Finance-Financial Institutions meeting held at the Bankers' Hall in Myeong-dong, Jung-gu, Seoul on the 27th, listening attentively to the remarks of Deputy Prime Minister for Economy Choo Kyung-ho. The meeting was attended by Deputy Prime Minister Choo, Kim So-young, Vice Chairman of the Financial Services Commission, and the chairmen of the five major financial holding companies: KB, Shinhan, Hana, Woori, and NongHyup. Photo by Kim Hyun-min kimhyun81@

Key Issues if Son Tae-seung Files Lawsuit Against Lime Sanctions

If Chairman Son chooses to file an administrative lawsuit regardless of his position, attention will focus on the legal battle between the Financial Services Commission and Chairman Son. It was confirmed that during the Financial Services Commission's disciplinary resolution meeting on November 9 last year, a minority opinion was raised stating that the grounds for disciplining Chairman Son were inappropriate.

Based on this, three major legal issues are expected: whether Woori Bank's sale of the Lime Fund can be considered 'improper solicitation,' whether Chairman Son is the ultimate person responsible (supervisor) for this incident, and how well both sides can prove fairness in disciplinary severity compared to Shinhan Bank, which will likely determine the outcome.

Issue ① Is Woori Bank's Failure to Disclose Lime Fund Risks 'Improper Solicitation'?

First, whether Woori Bank's act of selling the Lime Fund despite prior knowledge of its risks can be regarded as 'improper solicitation' under the Capital Markets Act is expected to be a key issue.

When the Financial Supervisory Service (FSS) imposed a 'reprimand' on Chairman Son in April 2021, it cited the provision on improper solicitation under Article 49 of the Capital Markets Act. The FSS argued that although the maturity repayment of the Lime Fund was uncertain, it was sold as a safe product automatically repaid at maturity by investing in fixed-rate assets such as A-rated bonds, thus constituting improper solicitation.

However, according to the Financial Services Commission meeting minutes, one commissioner expressed a minority opinion stating, "There is doubt about regulating omission (failure to act when required) under the improper solicitation clause, and there are no precedents in case law, administrative sanctions, or academic theories." The commissioner explained that the act of not disclosing risks at the time of sale corresponds to omission rather than improper solicitation, so the legal basis cited by the FSS is incorrect.

In response, the FSS rebutted, "Although instructing to continue transactions while hiding risks appears as omission, it is a serious wrongdoing for a bank, which must prioritize trust as its greatest value, to conceal risks as much as distorting explanations."

Issue ② Can Son Tae-seung Be Considered the Supervisor?

Whether Chairman Son can be regarded as the supervisor responsible for the Lime Fund redemption suspension incident will also be a decisive factor in the lawsuit's outcome. The FSS, in a previous DLF disciplinary hearing, applied the testimony that the head of the sales division 'did not engage in sales activities' to the Lime incident, designating Chairman Son as the ultimate responsible person and disciplining him accordingly.

One Financial Services Commissioner pointed out, "This differs from the content of the testimony given during the DLF disciplinary hearing regarding internal control violations." On the other hand, the FSS argued, "At that time, the head of the division did not only deny responsibility and authority for internal control but also stated that Chairman Son had authority and responsibility for fund launch, sales, and internal control, which the division head did not recall."

Issue ③ Fairness of Disciplinary Measures Compared to Shinhan Bank

The fact that Woori Bank received heavier disciplinary measures than Shinhan Bank for the same Lime incident is also expected to be a point of contention. The FSS had issued a 'cautionary warning' to Cho Yong-byeong, chairman of Shinhan Financial Group, and a 'caution' to Jin Ok-dong, former president of Shinhan Bank.

The authorities argue that Woori Bank's fund sales amounted to 141.9 billion KRW, about twice that of Shinhan Bank, and unlike Shinhan Bank, which indirectly recognized risks through media and prosecution investigations, Woori Bank directly identified evidence through about a month of due diligence, analysis, and management interviews, thus holding Woori Financial Group more accountable.

Regarding this, one commissioner stated, "Shinhan Financial was the bank that sold the Lime Fund until the latest stage and the scale was not insignificant," and expressed the opinion that "it seems the similar issue of improper solicitation was treated differently."

Another commissioner argued, "Woori Bank made significant efforts to understand the risks, which were documented," and claimed that this active management effort compared to Shinhan Bank should not be a reason for heavier punishment.