[Invest&Law] Court: "Optimus Fund Investment, Professional Investment Firms Also Partially Responsible"

Second Trial Recognizes NH Securities' Responsibility
Compensation Amount Reduced Compared to First Trial

NH Investment & Securities, the largest distributor of the Optimus Asset Management (Optimus) fund, has been ordered in an appellate court ruling to bear compensation liability to professional investors such as Ottogi and JYP Entertainment (JYP Ent.), both listed companies. However, unlike the first trial which ruled that the entire investment amount must be refunded, the compensation amount was reduced by about half.

According to the legal community on the 22nd, the Seoul High Court Civil Division 16 (Presiding Judge Kim In-gyeom) recently ruled in the first trial of Ottogi's lawsuit against NH Securities claiming unjust enrichment of approximately 15 billion KRW that "NH Securities must pay Ottogi about 7.55 billion KRW plus delayed interest."

The Optimus scandal involved CEO Kim Jae-hyun of Optimus Asset Management promoting the fund as a "safe product investing in public institution sales receivables, etc.," gathering over 1 trillion KRW in investments, which were then used for acquiring bad bonds and fund recycling, leading to the suspension of fund redemptions. Investors were unable to recover a total of 510 billion KRW, with NH Securities being the largest distributor, having sold 84% of the non-redeemed fund principal.

Subsequently, NH Securities refunded only the principal to 831 general investors following the Financial Supervisory Service's (FSS) recommendation. The FSS advised professional investors, including Ottogi, JYP Entertainment, and 29 other corporations (with a combined investment of about 100 billion KRW), to seek individual remedies through lawsuits and other means.

Ottogi, which invested 15 billion KRW upon NH Securities' recommendation, filed a lawsuit demanding the return of investment funds and delayed damages due to unjust enrichment. Ottogi argued that "the investment prospectus contained false information about the investment targets and structure, so the sales contract itself should be canceled," and claimed that "NH Securities did not properly verify the investment structure and explained the fund as highly safe, thereby obtaining unjust profits." Under civil law, if a significant error is found in a legal act such as a sales contract, it can be canceled.

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. NH Securities is not a party to the contract and does not bear an obligation to explain at the investment solicitation stage."

The first trial ruled that NH Securities must pay Ottogi approximately 15.496 billion KRW. The court held that distributors enter into sales contracts with investors and bear direct contractual rights and obligations. The court stated, "Under the Capital Markets Act, asset managers must enter into consignment sales contracts with distributors," and "from the perspective of investor protection and the nature of financial investment product transactions under the Capital Markets Act, a contract is established between the distributor and the investor through the sale of beneficiary certificates."

Furthermore, the court found that "the investment method explained by NH Securities was impossible. Ottogi's erroneous investment was caused by NH Securities," and ruled that the sales contract could be canceled.

The appellate court also recognized NH Securities' compensation liability. However, it limited the compensation amount, stating, "The primary responsibility for Ottogi's damages lies with Optimus. NH Securities is only liable for breaching its duty to protect investors."

First, the appellate court pointed out, "NH Securities did not sufficiently review or resolve suspicious content in the fund investment prospectus and recommended investments to investors," and "did not provide adequate explanations regarding the fund structure, investment targets, risk factors, or profit realization possibilities."

Additionally, the court stated, "It is difficult to see that NH Securities knew at the time of receiving the investment funds that there were grounds for contract cancellation or that the benefits received lacked legal basis," and added, "Under civil law, if a party is a 'malicious beneficiary,' they must return all benefits, interest, and damages. However, NH Securities is a 'bona fide beneficiary' unaware of legal issues and is liable to return benefits only to the extent they currently exist."

The court rejected NH Securities' claim that "damages have not yet been confirmed." The court noted, "Although about 2.4 billion KRW was repaid to Ottogi this year through partial recovery efforts, no further recovery prospects are visible," and assessed the unrecovered investment amount at approximately 12.582 billion KRW. The court also stated, "Ottogi is a professional investor. It is inappropriate to vaguely rely on information provided by NH Securities to join the fund and then belatedly shift responsibility for investment losses," limiting NH Securities' compensation liability to 60% of the unrecovered investment amount.

The appellate court reached a similar conclusion in the unjust enrichment claim lawsuit between JYP Entertainment and NH Securities decided by the same panel. While the first trial fully accepted JYP Entertainment's claim of about 3 billion KRW, the appellate court set the compensation amount at about 1.5 billion KRW, which is 60% of the unrecovered investment.