A committee of South Korea’s financial watchdog on Wednesday that banks and brokerages should fully return the principal of investments to consumers over missold funds amid growing concerns of Lime Asset Management’s suspended payment on some of its maturing funds due to liquidity problems following hefty losses in derivatives.

According to Financial Supervisory Service on Wednesday, the Financial Disputes Settlement Committee made the decision on Tuesday, citing investors were misled to buy the funds sold between November 2018 and July 17 last year and their contracts should be canceled. It is the first time for the authority to decide on a 100 percent return of investment principal in dispute settlement cases of financial investment products.

Fund sellers are advised to fully return investment principal to investors after contract cancellation. The funds include trade finance fund Pluto TF and its sub-funds. Pluto TF is one of the four funds managed by Lime Asset Management whose payment has been suspended. The other three are Tethys 2, Credit Insured 1, and Pluto FI D-1.

The FSS expected that in the case of self-regulated mediation, up to 161.1 billion won worth of investment principal will be returned to consumers. Pluto TF has been set at total 243.8 billion won that includes a leverage fund. About 500 retail investors and 58 corporate investors would be able to receive back principal.

The committee judged that Lime Asset Management and fund seller Shinhan Financial Investment continued to sell the funds even after being aware of fund insolvency in November 2018 by changing a management method to cover the problem.

An unnamed FSS official said that Lime Asset Management and Shinhan Financial Investment were “fully aware that up to 98 percent of investment principal on major investment asset IIG was insolvent upon contract signing” and that the asset manager made a false entry of key information such as investment risk and profit rate in its investment proposal while fund sellers advised details in the proposal to consumers, providing misinformation to investors.

As of June, the committee has received total 672 applications for dispute settlement related to Lime Asset Management including 366 cases against banks and 306 against brokerages.

The FSS said that it was not able to make a decision on the remaining funds that have been applied for settlement as damage from withdrawal delays has yet to be confirmed.

As of end of last year, Lime Asset Management has suspended withdrawal of total 1.67 trillion won including those of 4,035 individual investors and 581 corporations.

By Jin Young-tae and Lee Eun-joo

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