[비즈한국] The financial authorities have finally released the results of the Discovery Fund dispute mediation after approximately two years. In August 2023, authorities announced that they would conduct a fresh round of dispute mediation following the discovery of new allegations of illegal activity during additional inspections of three asset management firms—Lime, Optimus, and Discovery—and those results have now been made public. While this announcement is expected to bring the resolution of victim compensation for the Discovery Fund scandal, which has been ongoing since 2019, to a close, attention is now also turning to whether IBK Securities, which was previously sanctioned for incomplete sales, will provide compensation.
On April 23, the Financial Supervisory Service (FSS) announced the results of the damage compensation mediation (involving two investors) related to the 'Discovery US Fintech Global Bond Fund' sold by the Industrial Bank of Korea (IBK)024110 and Shinyoung Securities001720. The Financial Dispute Mediation Committee (FDMC) decided that IBK should compensate for 80% of the damages, and Shinyoung Securities for 59%. If both parties accept the mediation proposal within 20 days of receipt, the agreement will be finalized.
The Discovery Fund is one of the funds involved in the large-scale private equity fund redemption suspension scandal that occurred in 2019. It was sold by three banks—IBK, Hana Bank, and Shinhan Bank—as well as nine securities firms, including IBK Securities, Korea Investment & Securities, and Shinyoung Securities. After it was revealed to be an insolvent fund, redemptions were suspended in April 2019, causing numerous investors to lose their capital.
The FDMC announced the mediation results for IBK and Shinyoung Securities as representative cases because both companies sold the fund extensively over a long period (2017–2019). IBK sold 1,012 accounts (33 rounds), and Shinyoung Securities sold 198 accounts (11 rounds). In the case of IBK, which sold the largest volume of Discovery Funds, the sales amount reached approximately 679.2 billion KRW.
Once the remaining sales firms are handled through autonomous mediation based on these results, the relief process for Discovery Fund victims, which has spanned six years, is expected to conclude. According to the FDMC, as of the 22nd, there were 56 remaining dispute mediation cases, 42 of which involved IBK (35 cases) and Shinyoung Securities (7 cases).
Financial authorities first announced the damage compensation results for IBK in May 2021. At that time, since the total loss of the Discovery Fund had not been finalized, a post-settlement method was used, resulting in compensation levels between 40% and 80% based on the degree of incomplete sales by the distributors. However, illegal activities were discovered during an inspection of private equity asset management firms with suspended redemptions in August 2023, leading to the reopening of dispute mediation.
Compared to the May 2021 results, the major difference in this mediation plan is a 10 percentage point increase in the common weighted ratio for compensation. The FDMC explicitly stated that it took into account the fact that the sales firms sold the products extensively over a long period despite the clear need to check for fund risks, and that their internal controls were inadequate. Accordingly, a 30% increase—the maximum—was applied to IBK, and 25% was applied to Shinyoung Securities.
Notably, the FDMC recommended applying the revised compensation ratio to investors who had already reached an agreement. While stating, "If an agreement based on the May 2021 mediation plan was reached between IBK and the investor, the effects of the settlement mean that the rights and obligations between the parties can be considered extinguished," the committee added, "There was an opinion among FDMC members that, considering the intent of increasing the common weighted ratio and the necessity of financial consumer protection, it is hoped that IBK will actively review applying these new compensation standards even to cases where agreements have already been completed."
Victimized investors, who have been waiting for a long time, welcomed the announcement of the dispute mediation results. On the 23rd, the Industrial Bank of Korea Discovery Fund Fraud Victims Committee (Committee) stated in a press release, "We thank FSS Governor Lee Bok-hyun and the Financial Supervisory Service for keeping their promise to re-conduct dispute mediation, even if it is late," adding, "By increasing the common compensation ratio by 10%, a path has been opened for those who already reached settlements with IBK to receive additional compensation."
As the results were delayed, victims considered filing civil lawsuits against Discovery Asset Management and the sales firms, but abandoned the idea after the Supreme Court upheld the acquittal of former Discovery Asset Management CEO Jang Ha-won and the corporation regarding charges of violating the Capital Markets Act and fraud last January. The court determined that former CEO Jang and others did not know in advance that the funds were insolvent, nor did they have the intent to deceive investors.
Meanwhile, the victims are raising their voices, demanding that disputes with IBK Securities, in addition to IBK, be handled separately. This is because there are cases where IBK customers used integrated bank-securities branches and were signed up for the Discovery Fund through IBK Securities without their knowledge.
Lee Eui-hwan, the situation room chief of the Committee, emphasized, "Compensation ratios for securities firm investors are generally lower than those for banks due to reasons of investor responsibility. Additional compensation must be provided to victims who were customers of IBK but were signed up through IBK Securities." He added, "The bank that violated the duty to explain also bears responsibility. There has been a Supreme Court ruling that if a financial investment business operator solicits investment for products handled by another financial investment business operator, they bear the duty to explain even if they do not directly sign the contract."
IBK Securities was sanctioned by financial authorities in February 2023 with an institutional warning and a fine of 1.27 billion KRW after being found to have engaged in incomplete sales, such as violating investment prospectus delivery and advertising regulations during the process of selling the Discovery Fund. This was due to violations of the duty to explain, such as omitting information regarding investment risks and distorting facts by claiming the risk of principal loss was low.
IBK Securities has not issued a specific statement regarding the FDMC results. Lee Eui-hwan of the Committee pointed out, "Victims of IBK Securities have not been able to reach an agreement for six years. A dispute mediation committee has not even been held," adding, "Proper compensation must be made based on these mediation results."