[Exclusive] NongHyup Bank Employees Sued for Creating Fake Recordings After Selling "Hong Kong ELS"... Kookmin Bank Employees Also Accused of Forging Electronic Signatures

Complaint Filed with Gyeonggi Southern Police on January 2
Roles Assigned to Stage a "Simulated Scenario" to Evade Legal Violations
Customer Names and Signatures Forged After Incomplete Documents Detected

Employees of NH NongHyup Bank have been criminally charged for allegedly creating and storing fake audio recordings to conceal violations of the law after selling equity-linked securities (ELS) tied to the Hong Kong H Index (Hang Seng China Enterprises Index, HSCEI).

Since the introduction of the mandatory recording requirement for the entire sales process of high-risk financial investment products to protect investors, there have been previous issues with perfunctory recordings where customers simply answered as instructed by bank staff. However, this is the first known case where bank employees fabricated a recording file among themselves without the customer present.

Employees of KB Kookmin Bank have also been charged for allegedly forging customers’ names and signatures on electronic documents such as the “Investor Information Analysis Report” and “Batch Name and Signature Consent” after selling Hong Kong ELS products, and then entering these forged records into the bank’s computer system.

According to the legal community on January 8, Mr. A, who invested 50 million won in a Hong Kong ELS product at a NongHyup Bank branch in Incheon in June 2021, filed a criminal complaint on January 2 with the Gyeonggi Nambu Provincial Police Agency. The complaint targets Mr. Chu and Mr. Bae, who were then serving as deputy branch manager and assistant manager, respectively, and handling private banking work. They are accused of falsifying electronic records, using falsified electronic records, interfering with computer-based work, and violating the Capital Markets Act.

Around the same time, Mr. B, who invested 76 million won in a Hong Kong ELS product at another NongHyup Bank branch in North Gyeongsang Province, filed a similar complaint against Mr. Kang, who was then assistant manager, and an unidentified private banking staff member, on the same charges.

According to the complainants, on June 1, 2021, Mr. Bae approached Mr. A and said, “The previous product you subscribed to has matured, so I’ll help you reinvest in a similar, good product,” recommending the Hong Kong ELS product.

When Mr. A said he could not visit the branch in person due to personal circumstances, Mr. Bae suggested a non-face-to-face subscription, obtained consent, and proceeded with the subscription process.

However, following the enforcement of the revised Capital Markets Act and its subordinate regulations on May 10, 2021, it became mandatory to record the sales and contract process when selling high-risk financial investment products like Hong Kong ELS to general investors. Violating this requirement is classified as “unsound business conduct” and is subject to an administrative fine of up to 100 million won.

Excerpt from the transcript of the recording file received by Mr. A from NongHyup Bank.

To avoid these legal sanctions, Mr. Bae allegedly conspired with Mr. Chu, who was then deputy branch manager, to divide roles and stage a scenario in which they conversed as if a face-to-face explanation had taken place, even though they did not actually meet Mr. A or explain the risks of the product. They then recorded this staged conversation and saved the file on NongHyup Bank’s computer network.

Mr. Kang, who sold the Hong Kong ELS to Mr. B, is also accused of conspiring with other employees to create a fake recording file and transmit it to the bank’s server.

Victims Mr. A and Mr. B learned of these facts while requesting and reviewing related documents from the banks between late 2023 and early 2024, after seeing news reports that a sharp drop in the Hong Kong H Index had resulted in large-scale principal losses exceeding 40%.

The complainants argued that, given the excessive performance pressure within the banking sector in 2021, there is a strong possibility that there are more cases of fabricated recordings and misselling using the same method. They requested that police conduct an investigation by randomly sampling and comparing recording files.

Meanwhile, Mr. C, who suffered losses after investing 120 million won in March 2021 and 30 million won in May 2021 in Hong Kong ELS products at a KB Kookmin Bank branch in Gyeonggi Province, filed a criminal complaint with the Gyeonggi Nambu Provincial Police Agency against Mr. Seo, who was then deputy branch manager and responsible for private banking work, and employee Mr. Kim for falsifying electronic records and using falsified electronic records.

Mr. C invested 120 million won on March 4, 2021, at the recommendation of Mr. Kim, and 30 million won on May 3 of the same year at the recommendation of Mr. Seo, subscribing to Hong Kong ELS products on both occasions.

However, after realizing that there were issues with some of the electronic documents prepared after the fact, Mr. Kim and Mr. Seo, fearing accusations of misselling, allegedly re-created documents such as the “Investor Information Analysis Report,” “New Trust Account Application for Multiple Accounts,” and “Batch Name and Signature Consent,” forging Mr. C’s name and signature and saving them to the internal computer network.

Victims of the Hong Kong English Language School protest. Photo by Yonhap News Agency

Mr. C first visited the bank in December 2023 after seeing news about principal losses in the Hong Kong ELS products he had subscribed to, and received related documents. When he visited again in May 2024 to obtain additional documents for submission to the Financial Supervisory Service for rights relief, he discovered that the signature fields of the “Batch Name and Signature Consent” documents for both subscriptions contained signatures in handwriting different from his own. He also found signatures he did not write on the “Investor Information Analysis Report,” “Investor Information Confirmation,” and other documents.

Since the complaints were filed against individual employees, NH NongHyup Bank and KB Kookmin Bank have not yet reviewed the complaints and have not made any official statements. It is also difficult to confirm whether the accused employees are still employed, citing personal information protection reasons.

As employers of the accused employees, NH NongHyup Bank and KB Kookmin Bank could be held jointly liable for civil damages. However, at the same time, they are also victims whose work was disrupted or harmed by the forged recordings and falsified electronic records.

The Hong Kong ELS products subscribed to by the victims are derivative-linked securities (DLS) based on three stock indices, including the Hong Kong H Index. These are extremely high-risk products, where a drop in the underlying asset price below a set threshold can result in the loss of the entire principal. KB Kookmin Bank sold the largest amount among commercial banks, with products totaling 8.1972 trillion won, while NH NongHyup Bank sold 2.131 trillion won worth.

Currently, multiple civil lawsuits and dispute mediations are underway regarding the Hong Kong ELS incident. At the end of November last year, the Financial Supervisory Service issued a preliminary notice of the first round of penalties, including fines and administrative penalties totaling 2 trillion won, to five banks-KB Kookmin Bank, Shinhan Bank, NH NongHyup Bank, Hana Bank, and Standard Chartered Bank Korea-over the misselling of Hong Kong ELS products.

Choi Jinhong, an attorney at YK Law Firm and a former Financial Supervisory Service official representing the Hong Kong ELS victims in civil proceedings, commented on the case: “The mandatory recording and explanation procedures for high-risk financial products are core control mechanisms designed to prevent repeated cases of misselling and protect investors. However, the practice of prioritizing performance at the frontlines and viewing legally mandated procedures as inconvenient obstacles has ultimately led to the serious crime of manipulating records that must be highly reliable in financial institutions.”

He added, “This case clearly demonstrates the need to examine how laws and regulations are being distorted or rendered ineffective in actual business settings, beyond simply holding individual employees accountable for misconduct. I hope this incident will serve as an opportunity for the entire financial sector to firmly establish the awareness and practices needed to ensure that compliance obligations are not neglected in the name of work efficiency or convenience.”