Jungse Law Firm Represents Victims
"Invalid Contracts or Illegal Acts"
Banks Proceed with Voluntary Compensation While Preparing for Lawsuits
Victims of the "Hong Kong ELS crisis," which resulted in investment losses amounting to trillions of won, have filed the first class-action lawsuit against the banks, insurance companies, and securities firms that sold these products.
While some victims dissatisfied with the voluntary compensation plan proposed by the banks are currently undergoing dispute mediation procedures with the Financial Supervisory Service, the number of plaintiffs participating in the lawsuit may increase.
On March 15 last year, representatives of victims of Hong Kong H Index (Hang Seng China Enterprises Index) equity-linked securities (ELS) protested at the "National Financial Fraud Condemnation Rally" held in front of NH Nonghyup Bank in Jung-gu, Seoul. Photo by Yonhap News
On the morning of June 25, the law firm Jungse filed a complaint with the Seoul Central District Court on behalf of 17 victims of the Hong Kong ELS crisis, demanding the full return of their investment principal from six major financial institutions. The defendants in this lawsuit are Hana Bank, Kookmin Bank, Shinhan Bank, Nonghyup Bank, KB Life Insurance, and KB Securities. The amount claimed for return by the victims is approximately 3.6 billion won.
The plaintiffs argued, "Although the Hong Kong H Index ELS is a high-risk derivative product with the potential for total loss of principal, the banks misled investors with definitive statements such as 'It is safe unless the country collapses.'" They further claimed, "The contracts should be canceled as they were made under fraud or mistake, or are invalid as they constitute unfair legal acts under civil law." In addition, they stated, "Even if the contracts are not invalid, the actions constitute illegal acts in violation of the Financial Consumer Protection Act or the Capital Markets Act, specifically the principles of suitability, duty of explanation, and the prohibition of unfair solicitation."
The Hong Kong ELS crisis refers to the large-scale losses that occurred with equity-linked securities (ELS) products based on the Hong Kong H Index (Hang Seng China Enterprises Index), which were heavily sold by domestic banks between 2023 and 2024. The confirmed losses in January and February last year alone amounted to approximately 1.2 trillion won, and the number of accounts with confirmed losses reached 170,000.
After conducting on-site inspections and complaint investigations, the Financial Supervisory Service announced a standard for dispute mediation between banks and investors in March last year. Based on this, banks proposed voluntary compensation plans covering 20% to 60% of the losses. However, victims dissatisfied with the compensation plans?especially those who objected to the reduction of compensation rates based on past ELS investment experience?have applied for dispute mediation with the Financial Supervisory Service or are pursuing lawsuits.
Banks that have already completed voluntary compensation with a significant number of victims, based on the standards proposed by the Financial Supervisory Service, have acknowledged partial responsibility. However, they maintain that there are no issues with the compensation ratio standard, considering the principle of "investor self-responsibility." These banks are continuing with voluntary compensation while also preparing for litigation by retaining major law firms such as Kim & Chang and HwaWoo (for Kookmin), and Barun (for Nonghyup).
Choi Jaeyoung, an attorney at Jungse Law Firm representing the plaintiffs, stated, "Whenever incidents of mis-selling financial investment products such as KIKO, derivative-linked funds (DLF), Lime, and Optimus occurred in the past, financial authorities and institutions announced countermeasures, but the sales practices of financial institutions have not improved." He added, "We hope this lawsuit will set a clear standard for victims to receive substantial compensation and become a milestone that ends the vicious cycle of banks profiting from mis-selling."
*Hong Kong ELS
Hong Kong ELS refers to equity-linked securities that use the Hong Kong H Index?a composite indicator reflecting the stock price fluctuations of 50 leading companies simultaneously listed in mainland China and Hong Kong?as their underlying asset.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
