Back To Top

Prosecutors raid Lime, Shinhan Investment in misselling probe

FSS says nearly half of troubled funds sold through commercial banks

Shinhan Investment headquarters in Yeouido, western Seoul (Yonhap)
Shinhan Investment headquarters in Yeouido, western Seoul (Yonhap)

Prosecutors on Wednesday raided the headquarters of Lime Asset Management and Shinhan Investment, as part of a probe into alleged misselling of hedge funds that could cause losses of more than 1 trillion won ($845 billion).

According to the Seoul Southern District Prosecutors’ Office, it dispatched separate teams of investigators to the headquarters located in Seoul’s financial district of Yeouido around 9 a.m. to secure computer drives and documents linked to the case.

The search came after the financial authorities requested the prosecution investigate Lime Asset Management -- in September and earlier this month -- accusing the hedge fund operator of misselling and fraud.

Lime Asset Management, which halted cash withdrawals from four of its parent funds in 2019, freezing some 800 billion won in total, received fierce backlash from its investors.

Based on an intermediary inspection and accounting audit, the watchdog Financial Supervisory Service estimated that two of the four troubled funds may suffer losses of up to 730 billion won. The total amount of losses could grow to 1 trillion won, as other parent funds are still being inspected.

Shinhan Investment, the other institution under investigation, had allegedly sold the troubled products, despite being fully aware of its flaws and investment risks. The brokerage was one of Lime Asset’s prime brokerage service providers and had a total return swap deal worth 360 billion won with the fund operator.

With Wednesday’s raid, the investigation into the hedge fund fiasco is expected to gain further momentum, as the FSS is scheduled to start its first on-site investigation of Lime Asset Management early next month. FSS officials hinted Tuesday it would also look into banks that acted as key sales channels for the funds, including Woori Bank and Hana Bank.

According to the FSS on Wednesday, nearly half of the troubled funds were sold through commercial banks. They sold 49 percent, or 814.6 billion won worth, of 173 smaller funds linked to the parent funds, according to the watchdog.

Of the lenders, Woori Bank sold the most with 357.7 billion won, and Shinhan Bank followed with 276.9 billion won. Shinhan Investment, meanwhile, sold a total 324.8 billion won. The combined volume sold by the three institutions amounted to 64 percent of the total sales of the troubled funds.

The figure is unusually high in terms of private equity funds sold via commercial banks.

As of the end of last year, the total volume of such funds sold through lenders came to 25 trillion won, only 6.22 percent of all PEFs sold throughout 2019.

By Jung Min-kyung (mkjung@heraldcorp.com)
MOST POPULAR