Discovery Asset Management Loses Appeal in Lawsuit to Overturn Sanctions by Securities and Futures Commission

Discovery Asset Management, which received a suspension of securities issuance from financial authorities for violating disclosure obligations, filed a lawsuit in protest but lost again in the appellate court.

Jang Hawon, former CEO of Discovery Asset Management. Photo by Yonhap News

The Seoul High Court’s Administrative Division 11-3 (Presiding Judges Kim Woosu, Choi Suhwan, and Yoon Jonggu) on May 28 dismissed the appeal filed by Discovery Asset Management and former CEO Jang Hawon against the Securities and Futures Commission, upholding the previous ruling and ruling in favor of the defendant.

Previously, in May 2022, the Securities and Futures Commission imposed a one-year suspension of securities issuance on Discovery Asset Management, citing a violation of disclosure obligations due to its failure to submit a securities registration statement. Under current law, a securities registration statement is required for public funds with more than 50 investors. However, at the time, Discovery Asset Management was found to have circumvented public offering regulations by splitting the fund into multiple private funds. In response, Discovery Asset Management filed an administrative lawsuit seeking to overturn the commission’s decision.

The lower court ruled against the plaintiffs. The court stated that "the plaintiffs either knew or should have known that the beneficiary certificates of individual funds within the same series of these series funds constituted the same type of securities, and therefore, it is reasonable to conclude that there was either intent or at least gross negligence in violating the obligation to submit a securities registration statement." The appellate court on this day also found no issue with the original judgment and dismissed the plaintiffs’ appeal.

The Discovery Fund was sold between 2017 and 2019 through major banks such as IBK Industrial Bank and Hana Bank, as well as securities firms. Redemption was suspended after the local management company, DLI, was found to have falsely reported actual returns and the true value of investment assets, resulting in significant losses for both individual and corporate investors.