Korea: Optimus Asset Management Accused of Fraud, Embezzlement

Source: Regulation Asia Editors, Regulation Asia 2020-07-24

Optimus Asset Management CEO Kim Jae-hyun misappropriated investor funds to personally invest in stocks, futures and options since 2018.

South Korea’s FSS (Financial Supervisory Service) has said its probe into Optimus Asset Management has revealed that the hedge fund faked the fund portfolio to its investors, misappropriated their money and obstructed the authorities’ investigation.

According to local reports, Optimus funnelled 98 percent of the portolfio’s KRW 523.5 billion book value (as of 1 July) into real estate development projects and stock market through privately placed bonds issued by privately-held companies. This was contrary to Optimus’ term sheet, which only allowed the hedge fund to invest in trade receivables by companies engaged in state-led construction projects.

“Optimus misguided fund investors to pool their money, which led to fraudulent transactions,” said FSS deputy governor Kim Dong-hoe. “The term sheets promised investors that the fund invests solely in safe assets, despite the fund’s intention to actually invest in risky assets.”

Of the KRW 500 billion-plus Optimus was overseeing, some KRW 240.1 billion worth of funds halted withdrawals to end-investors ahead of the respective maturity dates, freezing the investors out. The FSS believes the rest of the funds to also likely be frozen, given the similar structures. “Optimus had attempted to come up with a financial product based on trade receivables in the early stage, but we have not found out any evidence that such products were actually sold,” Kim said.

Optimus CEO Kim Jae-hyun is also said to have misappropriated “a considerable amount of funds” to his personal account to invest in stocks, futures and options since 2018. He has been arrested and was indicted by prosecutors on Wednesday (22 July). Moreover, FSS said Optimus obstructed its investigation by submitting fabricated documents and concealing computers and other materials related to the case.

Optimus was also accused of illegally lending pooled money to finance a real estate project, for which it took commissions from property developers but failed to address the conflict of interest. The fund manager was also found to have hired ineligible financial professionals.

Last month, the FSS referred the Optimus case to prosecutors, who proceeded to raid the offices of both Optimus and NH Investment & Securities, a top seller of the fund which had pooled KRW 432.7 billion worth of feeder funds. The firm’s business was also suspended by the FSC (Financial Services Commission).

“Our top priority is to protect investors,” said Kim. “The FSS is currently working to preserve the funds as much as possible and identify assets. We’ve appointed a person within our organisation to manage them and are planning to transfer the funds later. The FSS is also looking into legal consultations to resolve complaints from investors.”

FSS

Optimus Asset Management

Korea: Optimus Asset Management Accused of Fraud, Embezzlement

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