South Korea’s financial watchdog on Wednesday proposed the hardest punitive action against Lime Asset Management, the scandal-ridden local hedge fund accused of causing investors nearly $1 billion in damages, by kicking it out of business and having it hand over its remaining funds.

The Financial Supervisory Service (FSS) recommended revoking Lime’s license, the state’s toughest administrative penalty, citing “serious social ramifications.”

The decision requires endorsement by the higher policy-making Financial Services Commission (FSC). If approved, Lime could lose its license as early as November.

Lime is accused of defrauding retail investors in investment shams, covering up massive losses and embezzling fund money. Founded in 2012, the name was top in the industry, with 5.7 trillion won (US$4.8 billion) under management as of June last year. It abruptly froze withdrawals of roughly 1.6 trillion won ($1.3 billion) in October, citing an inability to liquidate enough assets to meet redemption requests.

In addition to the license revocation, the FSS ordered Lime to hand over its remaining funds, which would be transferred to a bad bank to recoup some of the losses.

The FSS also demanded that key Lime executives, including Chief Executive Won Jong-jun, be dismissed.

The watchdog will open a hearing to determine the sanctions to be imposed on Lime brokerage vendors Shinhan Investment Corp., KB Securities Co. and Daishin Securities. The CEOs of the three securities firms have been informed that they could be slapped with “suspension of duty“ or other severe penalties.

Sanctions on bank vendors would follow after the ruling on brokerages.

By Pulse

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