[비즈한국] As the rehabilitation process for Cross Finance Korea, an online investment-linked finance (P2P) firm that experienced a massive non-settlement crisis, has been terminated, the victims' alliance is stepping up to demand accountability. The Cross Finance Victims' Alliance recently issued a statement regarding the termination of the rehabilitation process, declaring that they would use all possible means to hold those responsible accountable.
Cross Finance began as Korea Bill Broking, a company co-founded by Koscom, a subsidiary of the Korea Exchange, and Starbank, a subsidiary of Inzi Group (later sold to the Inzi Group). It changed to its current name in 2021 after formally registering as an online investment-linked financial business. Cross Finance primarily handled 'pre-settlement card sales products,' which were loan products collateralized by credit card sales receivables of small business owners. The scale of the damage was significant because investors trusted the company due to the fact that a subsidiary of the Korea Exchange held a stake in it. It was also widely perceived that their primary product, the card sales pre-settlement product, was relatively safe.
The problem with the Cross Finance crisis emerged from these 'card sales pre-settlement' products. Investors put their funds into them, viewing them as relatively safe since they were backed by sales receivables from card transactions. However, it was revealed that firms involved in the loan structure provided fake sales receivables as collateral and even embezzled the settlement funds. As a result, a non-settlement crisis of 72.4 billion won occurred in August 2024, and investors suffered massive losses, with most unable to recover their principal.
On the 6th, the Cross Finance Korea Victims' Alliance announced their position regarding the termination of the company's rehabilitation process. The alliance stated, "The termination of the rehabilitation process is not the end, but the beginning of a full-scale accountability process. The court's decision has made the essence of the situation clear," adding, "We will track down every cent of the assets hidden by those who collapsed the trust in the platform and will use all available means to hold them accountable to the end."
After the non-settlement crisis, Cross Finance went through a rehabilitation process via pre-packaged M&A. However, ahead of the creditors' meeting, the company voluntarily withdrew the rehabilitation plan, claiming that "it is difficult to obtain the consent of individual creditors." Consequently, the Seoul Bankruptcy Court terminated the rehabilitation process on March 16.
Victims countered, "The rehabilitation plan proposed by Cross Finance was at a level we could not possibly agree to." Upon reviewing the debt repayment plan submitted by Cross Finance at the end of last year, it was found that the cash that victims could receive was only 0.6%. This was because the plan involved a debt-for-equity swap for 99.4% of the claims, with only the remaining 0.6% to be paid in cash, effectively converting most of the debt into new shares.
A victim, identified as 'A', vented, "If the damage amount was 40 million won, the cash returned would be around 230,000 won," adding, "That is an amount that wouldn't even cover the cost of a lawsuit. They had no intention of taking responsibility or restoring the damages."
When debt is converted into equity, it is effectively a loss for the creditors. The plan for issuing new shares through a capital increase included provisions where the designated acquirer would take all the new shares, while both the shares issued through debt-for-equity swaps and existing shares held by current shareholders would be cancelled without compensation. It was a structure where the designated acquirer would take full ownership after the M&A.
The fact that the identity of the company selected as the final acquirer for Cross Finance was unclear was another issue. It was reported that the acquiring firm had low sales but held cash assets, and it had entered the acquisition process to secure a P2P license. The previously mentioned victim 'A' said, "They call themselves an e-commerce company, but it was difficult to verify the company's actual business operations or its location."
The Victims' Alliance emphasized that Cross Finance bears significant responsibility for the non-settlement crisis. While the direct cause was Lumen Payments, a payment gateway (PG) company, embezzling settlement funds, the alliance argues that Cross Finance proceeded with the loans recklessly even though it could have known that the merchant receiving the loans and the second PG firm (Lumen Payments) repaying the loans were the same entities, and that they were using fake card sales receivables as loan collateral.
In fact, in a damages suit filed by a creditor against Cross Finance, the court ruled, "It is insufficient to recognize that Cross Finance, as a P2P firm, exercised due diligence regarding the damaged investment products," adding, "There were circumstances that should have raised doubts about the existence and collateral value of the sales receivables used as collateral for the investment products, and as a P2P firm, it was necessary for them to verify this."
According to the ruling at the time, Cross Finance stated during its investigation that it was aware that the representative of the fake merchant was the same person as the representative of Lumen Payments. The court pointed out that Cross Finance lacked due diligence in explaining the repayment structure and collateral value of the pre-settlement products differently from the facts, and in failing to be suspicious despite the consistent timing of the sales revenue generation for the receivables.
The Victims' Alliance argued, "The 72 billion won non-settlement crisis is not a simple case of corporate mismanagement or investment loss. It is a financial disaster that occurred to investors who trusted the brand of an authorized online investment-linked finance platform and entrusted their funds," adding, "There are clearly people who knew about the structural flaws of the products and the absence of fund controls, yet condoned or abetted them." The alliance is currently pursuing criminal charges against Cross Finance.
Meanwhile, the Inzi Group and Koscom, the major shareholders of Cross Finance, have recognized their stakes as losses. The Inzi Group, an automotive, semiconductor, and electronic component manufacturing company, is the largest shareholder holding Cross Finance shares through its subsidiaries CyMedia160980 (28.6%), U-Tech Solution (5.01%), and Inzi Display037330 (5.0%), while Koscom holds a 32.8% stake. CyMedia and Koscom have recorded the book value of Cross Finance as zero on their financial statements.
The Victims' Alliance urged financial authorities and investigative agencies, saying, "Do not downplay this as the bankruptcy of a single company," and added, "We hope this will serve as a precedent for restoring the collapsed trust in institutional fintech, and we call for a thorough, unrestricted investigation and strict punishment."