A former executive of Lime Asset Management, a scandal-ridden hedge fund based in Seoul, was sentenced to five years in prison by a local court on Wednesday for illegally investing about 20 billion won ($17.3 million).

The Seoul Southern District Court convicted the former Lime executive, surnamed Kim, who served as head of the fund's alternative investment division, of breach of trust and other crimes and handed down the five-year prison term and a fine of 3.5 billion won.

Kim was arrested in April on charges of investing 19.5 billion won of Lime's funds into Star Mobility, an entity owned by private entrepreneur Kim Bong-hyun and believed to be the main financial source for Lime, in January this year.

The former Lime executive was also accused of helping the Star Mobility owner misuse the invested funds in return for membership at a golf club in Yongin, some 50 kilometers south of Seoul.

The Star Mobility owner, Lime's former CEO Won Jong-jun and former vice president Lee Jong-pil have also been indicted on charges of fraud and violation of capital market and financial investment laws in connection with the hedge fund's massive financial scam.

They were allegedly involved in the firm's cover-up of massive losses and subsequent suspension of fund redemption worth an estimated 1.6 trillion won.

Founded in 2012 as an investment adviser, Lime Asset was granted a license to operate private funds in 2015. The company was managing a record high of 5.7 trillion won as of June last year. 

In October, however, the company froze withdrawals, citing an inability to liquidate enough assets to meet redemption requests, prompting the nation's financial watchdog to conduct a probe and conclude the company duped investors by concealing losses and continuing sales of related products.

"Financial company executives and employees are on par with public servants in terms of the duty of integrity, as their work and business have a great impact on society," Seoul district court said.

"The defendant incurred a huge loss (to Lime Asset) through breach of trust, though he had an obligation to wisely manage the assets of investors," the court said.

The court also convicted Kim of evading a personal loss of 1.1 billion won by disposing of all of his shares in a Lime-financed Kosdaq company before its bad news was publicly announced. (Yonhap)