Fund firms ordered to compensate losses 100%

A Seoul court yesterday ordered the manager of a fund which invested in Lehman Brothers-related assets and a bank which sold it to retail clients to compensate investors for 100 percent of their losses.

The Seoul Central District Court ruled that Woori Asset Management and Hana Bank should pay 6.1 billion won ($5.3 million) to some 214 people who invested in the Woori Two Star KW-8 fund, the largest-ever amount of compensation ordered in a fund loss lawsuit.

"The defendant had switched the derivatives house to Lehman Brothers from BNP Paribas, as stated in the agreed-upon contract, which resulted in losses," presiding judge Yim Beom-seok said.



Run by Woori Asset Management and sold by Hana Bank, the Woori Two Star was initially designed to invest in over-the-counter derivatives from BNP Paribas. It had attracted 28.4 billion won from about 980 retail investors in 2007.

The court found the switch to Lehman Brothers, which later collapsed, sparking global financial turmoil, was tantamount to a breach of contract, resulting in a loss of 6.1 billion won.

Three lawsuits, including this one, have been filed by the investors seeking to get their money back. Previously, another court had given the opposite ruling, dismissing their claim.

Woori Asset Management, a unit of Woori Financial Group, said yesterday it plans to file an appeal.

"There is no legal ground that bans fund managers from changing (issuers of the securities,)" its lawyer told a press conference.

Hana Bank, the nation`s fourth-largest commercial lender, also said it will appeal.

"The ruling defines the sales partner`s responsibility over the fund`s management too broadly," the bank said.

The case, involving the largest amount of damage and the largest number of plaintiffs, is expected to fuel class-action filings against asset managers and their sales partners for mismanagement of funds or improper sales.

Fund investors had suffered losses when global financial markets plunged last year in the aftermath of a U.S. subprime mortgage meltdown.

The case marks the first time that the court has held an asset manager fully responsible for a failed investment. Judges in previous suits have recognized the fault of asset managers up to only 50 percent.

Currently, about 400 investors are seeking to recoup 5.4 billion won of their fund investment losses in a suit against the nation`s largest lender Kookmin Bank and its fund manager.

(milaya@heraldm.com)







By Lee Sun-young