Boramsangjo, Which Filed a Lawsuit Against Woori Bank Over Lime Fund Sales, Loses First Trial

Law Recognizes Woori Bank's Duty to Explain Violation...
"Advance Payment Exceeds Amount Already Compensated"

Boram Sangjo People, who filed a civil lawsuit against Woori Bank holding it responsible for investment losses in the 'Lime Fund,' lost in the first trial. Although partial liability for damages was recognized on the grounds that Woori Bank did not properly explain the product, the court ruled that "more compensation has already been paid."

On November 2, 2020, victims of the Lime Fund held a rally in front of the Financial Supervisory Service in Yeouido, Seoul, urging for dispute mediation to protect victims of the Lime Fund. Photo by Jinhyung Kang aymsdream@

According to the legal community on the 25th, the Seoul Central District Court Civil Division 21 (Presiding Judge Kim Ji-hye) recently ruled against Boram Sangjo People in the first trial of a 5.4 billion KRW unjust enrichment claim lawsuit filed against Woori Bank. The court stated, "An advance payment as compensation for losses exceeding the amount of damages recognized by the judgment has already been paid," adding, "After deducting this, there is no remaining compensation amount that Woori Bank needs to pay."

Earlier, Lime Asset Management created the 'Lime Pluto FI' fund (Lime Fund) in 2019, and Woori Bank was entrusted with selling this fund. In March of that year, Boram Sangjo People was offered an investment in the Lime Fund by Woori Bank and accepted, investing 10 billion KRW.

Meanwhile, Lime Asset Management, while managing the mother fund, entered into a total return swap (TRS) contract with KB Securities to maximize leverage effects. This was to borrow a much larger amount than the investment capital from KB Securities to generate higher returns. However, since KB Securities could prioritize recovering the loan in case of losses in the fund, the structure lowered the likelihood of principal recovery for fund investors, increasing the risk of loss.

However, the situation worsened when the Lime Fund redemption suspension incident occurred. Lime Asset Management promised returns of 5-8%, higher than market interest rates, and engaged in a Ponzi-like scheme, causing a massive redemption suspension involving about 4,500 affected investors and losses amounting to 1.6 trillion KRW.

In May 2020, Woori Bank acknowledged that "fund losses were inevitable" and paid Boram Sangjo People approximately 4.9 billion KRW, about half of the investment, as partial recovery and advance payment. A month later, Woori Bank planned to provide additional compensation in line with financial authorities' dispute mediation.

Boram Sangjo People rejected this and filed a civil lawsuit. They claimed, "Woori Bank, as the fund seller, must return unjust enrichment due to contract invalidity. They made false explanations implying the product was stable," and demanded about 5.479 billion KRW excluding the advance payment, along with delayed interest.

The first trial recognized Woori Bank's liability for damages, stating it violated the duty to explain. The court pointed out, "Woori Bank employees only guided investors to 'read the materials first' regarding the TRS contract structure and leverage during the investment solicitation process, without providing separate explanations," and added, "It is difficult to see that necessary information such as expected returns and investment risks, which could significantly influence the subscription decision, was properly explained when recommending the fund subscription."

However, the court limited Woori Bank's compensation responsibility to 50%. The court explained, "Investors should, in principle, accurately understand the product's content, profit and loss structure, and risks in advance based on their own responsibility and carefully review before investing. If they had paid a little attention, they could have known the fund's risks but still invested a large sum recklessly," and "The damages in this case occurred in conjunction with Lime Asset Management's illegal fund management."

Accordingly, the first trial concluded that "Woori Bank has no money to pay Boram Sangjo People." The court ruled, "Woori Bank is obligated to pay about 4.822 billion KRW and delayed interest. However, if Boram Sangjo People do not agree with the compensation ratio notified by Woori Bank according to the financial authorities' compensation standards, they must also return the approximately 4.9 billion KRW received as advance payment," and "Therefore, there is no remaining amount of damages that Woori Bank must pay."