[비즈한국] It has been confirmed that the Hyundai Motor Chung Mong-koo Foundation and Hyundai Motor Securities001500 have both filed appeals in a 15.1 billion won damages lawsuit regarding a resort development investment in Las Vegas, USA. In the first trial, which concluded after four years, the court partially acknowledged Hyundai Motor Securities' liability for failing its duty of explanation and ordered it to pay approximately 9 billion won to the foundation. However, as both sides have refused to accept the ruling, the legal battle within the group is set to become a long-term affair.
As both the Hyundai Motor Chung Mong-koo Foundation and Hyundai Motor Securities have filed appeals in the lawsuit over the U.S. resort investment, attention is focused on whether the litigation will turn into a prolonged legal struggle. The second trial for the damages lawsuit between the Chung Mong-koo Foundation and Hyundai Motor Securities was filed with the 14-1 Civil Division of the Seoul High Court on August 22.
On July 18, the Chung Mong-koo Foundation won a partial victory in the first trial of the damages suit filed against Hyundai Motor Securities. The foundation had claimed 15.109 billion won, but the court ordered Hyundai Motor Securities to pay 9.0654 billion won. The foundation was ordered to bear 40% of the litigation costs.
This 'family feud' originated from the collapse of the development of 'The Drew Las Vegas,' a large-scale integrated resort facility in the United States, in 2019. The Chung Mong-koo Foundation had been managing its assets through discretionary investment contracts with Hyundai Motor Securities annually. In November 2018, Hyundai Motor Securities sent a prospectus for a resort development business fund to the foundation and recommended an investment. After reviewing the prospectus, the foundation sent a letter of consent, and in January 2019, Hyundai Motor Securities invested 15.877 billion won of the foundation's entrusted assets into the fund created for the resort development project.
The Drew Las Vegas resort development project aimed to build a 68-story integrated resort, including a casino and hotel, with a total project cost reaching 3 trillion won. Over 300 billion won in capital was funneled through domestic and international institutions, including JP Morgan and Mirae Asset Securities006800.
However, the situation changed due to the sudden spread of COVID-19. As the Nevada state government declared the closure of Las Vegas business sites in March 2020, resort construction was halted. When the developer failed to repay loans in November 2020, ownership of the resort was transferred to senior lenders under a DIL (Deed in Lieu of Foreclosure) clause, which allows the developer to settle debt by transferring real estate ownership to senior investors. By around March 2021, 15.109 billion won of the 15.877 billion won invested by the Chung Mong-koo Foundation was treated as a loss.
Having lost most of its investment, the foundation filed for damages against Hyundai Motor Securities in November 2021. The foundation argued, "In the process of recommending the mezzanine loan (subordinated debt with potential for principal loss) fund, the securities firm did not provide specific guidance on the investment structure or the possibility of losses. Instead, they claimed that the investment could be recovered in an emergency due to a low LTV (Loan-to-Value) ratio." Citing errors caused by the securities firm's deceptive practices, the foundation cancelled the discretionary contract in December 2023 and demanded compensation for the 15.109 billion won loss plus delay damages.
On the other hand, Hyundai Motor Securities countered that it had explained all investment risk factors within its knowledge and that the foundation, having experience with various overseas alternative investments, was aware of the fund's risks. Furthermore, it argued that it had entered into the discretionary contract after understanding the foundation's investment objectives, experience, and risk appetite, and had obtained investment consent after review and approval by an internal committee, thus not violating its duty of care.
The court acknowledged that Hyundai Motor Securities breached its duty of explanation, causing harm to the Chung Mong-koo Foundation. It pointed out that in the process of recommending the investment, the securities firm misrepresented the loan collateral and failed to sufficiently explain the possibility of investment recovery. This was because the investment prospectus provided by Hyundai Motor Securities lacked even general explanations regarding risks of principal loss or overseas investment risks. The court concluded that the foundation would not have approved the investment had it been aware of the fund's accurate information.
However, the court did not recognize the grounds for cancellation of the discretionary contract, such as the deceptive practices or misunderstandings claimed by the Chung Mong-koo Foundation. It stated that because Hyundai Motor Securities was also a party that suffered losses, it was difficult to see intent to deceive, and it could not be concluded that there was a mistake in the investment approval process.
Regarding this appeal, Hyundai Motor Securities stated, "We appealed because there is a disagreement over the ratio of negligence, even if we accept the status of a general investor. It is difficult to comment on the remaining matters as the litigation is ongoing."
Meanwhile, institutional investors, including Hyundai Motor Securities, have filed a 92 billion won lawsuit for unjust enrichment against Mirae Asset Securities and NH Investment & Securities005940, which managed the resort investment. Hyundai Motor Securities and others argued that "the two securities firms did not inform them of the existence or risks of the DIL clause during the contract process and explained as if the investment could be recovered even in the event of default," but the court did not accept these claims. With the court siding with Mirae Asset and NH Investment & Securities in the first trial on May 15, the institutional investors have proceeded with appeals.