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KB Securities. (Photo courtesy of KB Securities) |
[Alpha Biz= Paul Lee] A South Korean court has ruled that disciplinary action imposed on a former securities executive over the “Lime Asset Management scandal”—which resulted in losses exceeding KRW 1.6 trillion—was unlawful.
According to legal sources on April 5, the Seoul Administrative Court ruled in favor of Yoon Kyung-eun in a lawsuit seeking to overturn a disciplinary notice issued by the Financial Services Commission.
The case stems from the 2019 Lime scandal involving Lime Asset Management, which was accused of improperly managing returns through irregular transactions involving convertible bonds (CBs) of KOSDAQ-listed companies. The controversy led to a large-scale suspension of fund redemptions totaling approximately KRW 1.67 trillion.
Following early warning signs identified in June 2019—including circular fund transactions and inappropriate use of total return swaps (TRS)—Financial Supervisory Service launched inspections into Lime Asset Management and related financial institutions, including KB Securities.
Based on the findings, the Financial Services Commission in November 2023 instructed KB Securities to take disciplinary action against executives, including Yoon, for alleged violations of internal control obligations under the Capital Markets Act. Yoon was subject to a three-month suspension for purported failures in establishing and enforcing internal control standards related to financial product sales and TRS transactions.
Yoon challenged the decision in court, arguing that the sanctions were unjustified.
The court ruled in his favor, determining that Yoon had not violated his duty to establish internal control standards and that KB Securities’ internal controls were not merely formal but functionally effective.
The court noted that the company’s internal policies required evaluation of both strategic importance and potential risks when approving new financial products, with stricter quorum requirements applied to high-risk offerings. It also recognized that KB Securities had established monitoring and compliance systems capable of detecting improper TRS-related transactions.
The ruling stated that proper adherence to existing internal control standards would have enabled a sufficient level of risk management, even in cases where TRS transactions involved fund-based underlying assets.
As a result, the court concluded that there was no violation of internal control obligations related to TRS transactions.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
