The state-run Industrial Bank of Korea (IBK) is expected to reimburse up to 80% of structured fund losses through Discovery Asset Management, according to a recommendation from the Financial Supervisory Service (FSS).
According to the regulator on Tuesday, its dispute resolution committee set the reimbursement rate for individual investors who subscribed to Discovery funds through IBK at between 40 and 80%.
While part of the principal invested in Discovery funds sold by IBK has been recovered by investors, 76.1 billion won ($ 67.8 million) has yet to be returned, according to the FSS.
The bank sold Discovery Asset Management funds that invested in Direct Lending Investments, a US asset management company that is the subject of a complaint by the US Securities and Exchange Commission and is currently in receivership .
If IBK accepts the opinion of the Dispute Resolution Committee, which is not legally binding, it will begin negotiating with investors to compensate them for losses that would not have already been recovered otherwise.
For IBK, the FSS committee has chosen two cases, which can be used as precedents for further disputes.
The committee asked the bank to repay 64% of an investment in the Discovery US Fintech Global Bond Fund by a small company. IBK’s sales staff described the high-risk fund as a safe product and falsely stated that the investor was looking for aggressive investments.
The committee also asked the bank to repay 60% of an investment in the Discovery US Real Estate Senior Bond Fund by an individual investor for selling the product without properly explaining the high risks of investing in the fund.
Based on these cases, the committee set the range from 40% to 80%.
Besides IBK, there are two banks and nine brokerage houses that have sold two types of problematic Discovery funds. The FSS said it would settle disputes related to the remaining institutions in the near future with reference to the IBK ruling.
BY KIM JEE-HEE [[email protected]]