Korea’s Aussie property fund seller seeks damages for reimbursement

  • 2020-07-21

KB Securities Co. Ltd. has claimed damages arising from the alleged breach of contract over an Australian real investment fund after it returned 90.4 billion won ($75 million) in investment principal to individual investors in the fund managed by a South Korean asset manager last year.

The brokerage firm filed a lawsuit against JB Asset Management Co. Ltd. with the Seoul Southern District Court on June 25, seeking an undisclosed amount in damages related to the refund, according to investment banking sources on July 20.

The legal action was taken to cover the costs of the full reimbursement to 160-odd retail investors. KB Securities is estimated to have spent over 10 billion won in its own money for the reimbursement.

KB Securities had raised 326.4 billion won from both institutional and retail investors in South Korea between March and June last year for the JB Australia NDIS Fund.

Their investments broke down into 90.4 billion won from individuals and 236 billion won from six institutions — Korean Reinsurance Co., the MG Korea Federation of Community Credit Cooperative, the National Forestry Cooperative Federation, Korea Investment & Securities Co. Ltd., ABL Life Insurance Co. Ltd. and IBK Insurance.

The NDIS Fund, pitched as a medium-risk, medium-return vehicle, had lent the money to Australian developer LBA Capital to invest in government-subsidized accommodations for the disabled for a target return of 5% per annum.

But LBA Capital had used the money for different purposes, including a land purchase, because real estate prices in Australia went up.

Citing breach of contract, KB Securities and JB Asset have retrieved 285 billion won in cash from the investment, equivalent to 87% of the fund’s lending to LBA Capital.

The lawsuit was filed after five out of the six institutional investors had sued both KB Securities and JB Asset one after another to seek reimbursement and damages over the fund since the beginning of the year.

KB Securities had refused to give back the principal to the institutional investors, arguing that it could make the refund once the retrieval is completed and the investment loss is fixed.

Those legal actions may spark a debate over who should assume ultimate responsibility for the loss from investment funds in conflicts over compensation for damages.

As the brokerage arm of KB Financial Group is embroiled in legal battles over the Australian fund, it could seek additional damages from JB Asset in relation to future reimbursement to the institutional investors.

Meanwhile, the regulatory Financial Supervisory Service (FSS) launched a special inspection team this week to examine about 10,000 private investment funds over the next three years, according to financial industry sources on July 20.

The regulatory move followed a series of alleged large-scale investment frauds, including Seoul-based Lime Asset Management Co. Ltd. and Hong Kong-based private equity firm Gen2 Partners that failed to meet 1.7 trillion won and 1.3 trillion won worth of redemptions, respectively.

The inspection team is composed of 20 FSS employees and ten officials dispatched from financial institutions including Korea Deposit Insurance Corporation and Korea Securities Depository.

By Hyung Joo Oh

ohj@hankyung.com

<Edited by Yeonhee Kim>

(Photo: Getty Images Bank)