[Exclusive] Court Rules "Optimus Sales Company Must Compensate Professional Investors"… NH Securities Loses Case

"Public Institution Accounts Receivable Investment" Promotion
NH Securities Returns Investment Only to General Investors
Responsible for Returning a Total of 18 Billion KRW to Ottogi and JYP

A court ruling has determined that NH Investment & Securities, the largest distributor of the Optimus Asset Management (Optimus) fund, must return the principal investment not only to general investors but also to 'professional investors' such as listed companies. Amid ongoing legal disputes over compensation responsibilities among distributors, trustees, and investors following the 'trillion-won scale Optimus fund redemption suspension incident,' this ruling, which broadly recognizes the distributor's liability, is expected to have a significant impact on related future lawsuits.

Victims of the Optimus Fund NH Investment & Securities held a protest rally on July 20, 2020, in front of the National Agricultural Cooperative Federation in Jung-gu, Seoul, demanding compensation for damages. Photo by Hyunmin Kim kimhyun81@

According to the court on the 19th, the Civil Division 30 of the Seoul Central District Court (Presiding Judge Jeong Chan-woo) recently ruled in favor of Ottogi in the first trial of a 15 billion KRW unjust enrichment claim lawsuit filed against NH Securities.

The Optimus incident involved CEO Kim Jae-hyun of Optimus Asset Management promoting the fund as a safe product investing in public institution accounts receivable, gathering over 1 trillion KRW in investments, but then using the funds for acquiring bad debts and Ponzi-like fund cycling, leading to the suspension of fund redemptions. CEO Kim was sentenced to 40 years in prison and is currently serving his sentence.

Investors have not been repaid a total of 510 billion KRW, and NH Securities was the largest distributor, having sold 432.7 billion KRW, which is 84% of the non-redeemed fund principal. Following the Financial Supervisory Service's recommendation, NH Securities distinguished between general and professional investors, returning the principal only to 831 general investors. However, the Financial Supervisory Service advised that professional investors, including 29 corporations such as Ottogi and JYP Entertainment (with a combined investment of about 100 billion KRW), should individually seek court judgments through lawsuits.

Ottogi, which invested 15 billion KRW at NH Securities' recommendation, filed a lawsuit demanding "return of investment and delayed damages due to unjust enrichment." During the trial, Ottogi argued that "the investment targets and structure stated in the prospectus were false, so the sales contract itself should be canceled," and that "NH Securities did not properly verify the investment structure and used a prospectus containing false information to explain the investment as highly safe." On the other hand, NH Securities countered that "it only acted as a broker or arranger for each fund of professional investor Ottogi and Optimus," and "NH Securities is not a party to the sales contract and does not bear explanatory obligations at the investment solicitation stage."

The first trial ruled, "As a party to the sales contract, NH Securities must pay Ottogi approximately 15.496 billion KRW."

The court stated, "Under the Capital Markets Act, the asset manager must enter into a consignment sales contract with the distributor," and "from the perspective of investor protection and the nature of financial investment product transactions under the Capital Markets Act, a contract between the distributor and investor should be considered established through the sale of beneficiary certificates." This means that the distributor enters into a sales contract with the investor and directly assumes contractual rights and obligations.

Furthermore, the court noted, "Although investment and safety in public institution accounts receivable were emphasized, such investment was impossible. Ottogi's mistake was induced by NH Securities," and ruled that Ottogi could cancel the sales contract accordingly. Under civil law, if there is a significant mistake in a legal act, that act can be canceled. For the same reason, the court also recognized NH Securities' liability in the first trial of a 3 billion KRW unjust enrichment claim lawsuit filed by JYP Entertainment on the same day.

Meanwhile, this lawsuit is expected to influence not only lawsuits involving professional investors but also a 10 billion KRW civil lawsuit filed by NH Securities against trustee Hana Bank and administrative agent Korea Securities Depository, demanding joint liability. When the Financial Supervisory Service explained the grounds for principal repayment to general investors, stating that "NH Securities caused confusion by relying solely on the asset manager's investment proposal to explain the product," NH Securities returned the principal but did not accept the 'mistake cancellation' argument, as it believed that the sales responsibility also lies with Hana Bank and others.

NH Securities claims, "Hana Bank, as the trustee responsible for monitoring fund management, failed to fulfill its duties and tolerated or aided the fund's use in private loans and other improper investments. Korea Securities Depository also, at the asset manager's request, altered private bond entries on asset statements to public institution receivables, causing investors to be misled."