Discovery Asset and CEO accused of favoritism and fraud likely to be suspended

2022.02.14 14:12:42 | 2022.02.17 13:25:33

[Photo by Financial Services Commission]이미지 확대

[Photo by Financial Services Commission]

Seoul authorities this week are expected to deliver suspension on Discovery Asset Management, a fund accused of favoritism for investment by a key former presidential policy chief and managed by his brother.

The Financial Services Commission is expected to finalize its disciplinary action on Discovery Asset Management and its chief executive officer Jang Ha-won at regular meeting on Wednesday, about a year after the Financial Supervisory Service recommended three-month suspension of the private equity firm and its chief. The decision will be reviewed in a subcommittee meeting on Monday.

When confirmed, Jang won’t be able to work as an executive in a financial institution for four years in the second-highest penalty on a financier after dismissal.

Suspension from operation is also the second highest under Korean legal system after revoking business license.

Financial watchdog FSS in February last year recommended top authority FSC to suspend Jang from work and Discovery Asset Management’s operation for three months.

The FSC is expected to uphold the FSS recommended penalty. Stronger action of revocation of business license can be taken if policy finds fraud in its practice.

Victims of Discovery Asset Management are demanding heavy disciplinary action on not only the private equity firm but also fund sellers as well as complete return of principal.

Discovery Asset Management was founded in November 2016 by Jang Ha-won, the younger brother of Jang Ha-sung who served as the first presidential policy chief under the Moon Jae-in administration and currently is the chief envoy to China.

The asset management firm launched funds that invested in U.S. fintech and real estate related bonds from 2017 to 2019. The funds were sold via state-invested Industrial Bank of Korea and other major Korean banks as well as 12 securities firms.

Redemption on the private equity funds became suspended in April 2019 after fund manager in the U.S., DLI, went under court receivership with assets frozen by the U.S. Securities and Exchange Commission.

Investors’ money suspended from redemption amount to 256.2 billion won. Those sold through Industrial Bank of Korea make up 30 percent of the total, nearing 76.1 billion won.

FSS at the dispute mediation meeting held in May last year decided 40 to 60 percent compensation to be paid out to investors by fund sellers before reimbursement.

Victims argued Discovery Asset Management already had been aware of high risk of losses from the U.S. fund management chief executive’s illegal actions at the time the contract was signed to demand complete return of their money.

Discovery Asset Management currently is striving to retrieve invested capital from funds under redemption suspension. Market experts estimate fund recovery at just about 20 percent.

By Moon Ji-woong and Cho Jeehyun

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