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Brother of Seoul envoy to Beijing suspended for misselling of funds

FSC also fines IBK for selling troubled fund worth W250b

Victims of the troubled Discovery funds hold a protest in front of the Industrial Bank of Korea headquarters in Seoul on Wednesday, asking the lender for 100 percent compensation of the money they lost. (Yonhap)
Victims of the troubled Discovery funds hold a protest in front of the Industrial Bank of Korea headquarters in Seoul on Wednesday, asking the lender for 100 percent compensation of the money they lost. (Yonhap)

South Korea’s financial regulator on Wednesday decided to suspend Jang Ha-won, the chief executive of Discovery Asset Management from his duty, and fine the state-run Industrial Bank of Korea for misselling of funds with frozen assets amounting to 256.2 billion won ($214 million).

Jang is the younger brother of South Korea’s incumbent ambassador to China, Jang Ha-sung.

The Financial Services Commission upheld the watchdog Financial Supervisory Service’s earlier ruling to “suspend duties” of Jang Ha-won from his current position – the second-harshest in the watchdog’s five-tier punishment system. The regulator also slapped a 4.7 billion won fine on IBK for failing to take full responsibility as a sales channel for the funds, mostly sold between 2017 and early 2019. Jang Ha-won will temporarily step down from his role as head of Discovery for three months and will be barred from being hired as a CEO or executive of any financial institution here for the next four years.

Besides being slapped with a fine, IBK is also temporarily barred from working as a sales channel for funds.

Following its suspension of redemption amounting to 256.2 billion won as of April last year, the troubled funds garnered attention after it was reported that the current ambassador to China and Kim Sang-jo, President Moon Jae-in’s former chief of staff for policy, invested over a combined 6 billion won in the funds around 2017.

The police have launched a probe into the case, suspecting the fund as a Ponzi scheme, but have not delivered any information of the investigation yet.

The funds -- Discovery US Fintech Global Bond Fund and Discovery US Fintech Real Estate Senior Bond Fund -- were designed by Discovery Asset Management, and then sold via 12 banks and brokerages for two years. They became troubled in April 2019, when the US securities authorities froze the assets of a US asset management firm that was operating the funds locally upon finding it filed false reports.

IBK sold a hefty sum of 679.2 billion won of funds to its customers. Eventually 91.4 billion won of the total became frozen, accounting for almost 30 percent of the total frozen funds. The FSS last year told the IBK to compensate 40 to 80 percent of the principal investments made by their customers. But investors have been calling for a 100 percent compensation.

IBK’s refusal to heed the investors’ request has been delaying the compensation process for four years. This is in contrast with another seller of the funds, Korea Investment & Securities, which paid back 100 percent of its customers’ principal investment following the FSS’ decision last year.

Discovery Asset Management was established in 2016 by Jang, formerly chief of Hana Financial Group’s think tank Hana Institute of Finance.

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