Industrial Bank of Korea fined $3.93m for selling fraudulent funds

IBK sold fraudulent funds of Discovery Asset Management, according to FSC.

The Industrial Bank of Korea (IBK) was fined $3.93m (KRW4.71b) and a partial business suspension of one month for selling fraudulent funds of Discovery Asset Management between 2017 to 2019.

According to South Korea’s Financial Services Commission (FSC), IBK violated the Capital Markets Act for “incomplete sales” and for the failure to properly explain risks associated with the Discovery funds being sold to customers, as well as violations in advertising financial products, resulting in customers’ losses.

According to local media reports, Discovery Asset Management Co. sold investment funds named "Discovery" between 2017 and 2019. But redemption was suspended in 2019 after US securities authorities froze the assets of a US firm operating the funds. The frozen funds came to $210.75m (KRW256.2b) with IBK accounting for around 30% of the total.

“We have decided to take measures such as partial suspension of business, fines for negligence, and sanctions against employees for violations found as a result of inspections by the Financial Supervisory Commission on Discovery Asset Management and Small and Medium Business Bank,” FSC wrote in an announcement published on its website.

FSC also approved a three-month suspension for Discovery Asset Management chief Jang Ha-won. 

Jang is the younger brother of the country’s ambassador to China, Jang Ha-sung, according to local media reports.

Discovery was also fined a total of over $10.5m (KRW15m) and some businesses of the firm were suspended for three months.

(US$1 = KRW1,196.57)