Private equity has become a fraud fund. Lines of foreign interest-linked derivatives-funded funds (DLFs) to Lime and Optimus continue to grow, and sighs of retired seniors, housewives, and workers are accumulating with losses of hundreds of billions of won. From the second half of last year to 22, the number of private equity funds that had been discontinued from repurchases amounted to 22,560 trillion won. The financial authorities came up with two measures in November last year and two in April this year. The minimum investment of a private equity-type private equity fund was raised from 100 million won to 300 million won. Also, checks and monitoring devices between market participants were prepared. Since then, private equity has been growing like a snowball. To find the dream of the’Korean Private Equity Fund’ again, there is a strong voice that measures so far have been insufficient. It is pointed out that the barn needs to be strengthened with additional measures, such as strengthening sales regulations, drastically raising the entry threshold, creating compensation funds, and introducing punitive damages.
◆Private private equity funds
“I said there was no loss of principal unless the country was ruined.”
Investors were shaking their heads in the recent private equity crisis. Even though the country was not ruined, their bloody money flew into the air overnight.
Lee Mo (47), an office worker who joined the Optimus Fund in January, invested 200 million won in Optimus for 20 years in Seoul, and was defrauded in full. Mr. Lee said, “I usually never subscribe to a product that will lose the principal amount of money.” “I contacted Private Banker (PB) and said that I would know that there is a safe product. “I’m sorry and it’s hard for my family to cause this situation with my choice,” he said. “Every time my wife asks,’What’s wrong with what’s safe?’
Song Mo (60), who lives in Cheongju, North Chungcheong Province, saw 300 million won in failure. “I had to work until the age of 75, so I retired and planned to live a second life by washing the car,” said Song. “There is a safe investment product that can’t be ruined even if it tries to be ruined. did.
Kang Mo (46), who invested 300 million won in the Optimus Fund for the rest of his life, said, “If I thought it was an investment, I would not have put in 300 million won.” “I emphasized that the product was safe, so I couldn’t be alert.” He said, “Everyone has become vigilant since the Lime crisis, and PBs have been relieved to have individual investors who have invested 1 billion won or 2 billion won.”
Ryumo, who joined the Discovery Management Fund, signed a proxy contract with his father even though he was in the United States. “I was in the United States at the time of the contract, but the bank employee asked me to sign the proxy without any explanation,” he said. I vomited.
◆To change from the fundamentals of private equity
In a series of private equity cases, similar testimonies were poured out. Banks and securities firms who were blinded by the fees have been conscientious. I went to offensive marketing as if I couldn’t believe it, as if I couldn’t believe it. As a result, high-risk private equity funds were sold as’safe products’. Discovery Fund joined the 93-year-old and Pop Fund-linked Fund joined the 90-year-old. Various documents and procedures were ignored. In 2015, due to deregulation by the authorities, bad managers grew up and down, and when their fraud and embezzlement was revealed, the money they had to give back was running out.
Alternatives to correct the misplaced private equity market are largely discussed in two directions. In order to protect customers, there are opinions that the operation and sales regulations will be tighter, and a proposal to return to the’man’s playground’ will be presented.
Hyo-Seop Lee, a senior research fellow at the Capital Market Research Institute, said, “The authorities have recently tightened sales regulations, but in order to eradicate incomplete sales, we must raise the fines and change the structure of financial companies to make profits from advisory fees rather than sales fees.”
The Financial Consumer Protection Act, which will take effect in March next year, will require 50% of the profits earned from a financial company to be thrown out as a fine. The researcher pointed out that the fine should be raised up to 200%. As long as the main source of revenue for banks and securities companies dealing with private equity funds is the pre-sale fee, it was considered difficult to disappear. The research committee member said, “It is necessary to change the focus to advisory fees that receive advisory rewards in proportion to customer profits so that they can be managed in the future”.
On the other hand, there are also voices that the private equity market needs to be built high. It means that we must return to the’wilderness that we know and invest and no one is responsible for.’ Professor Park Chang-gyun of the Department of Economics at Chung-Ang University said, “It is a private market where people with skills, abilities, and experienced people enter and invest under their own responsibility. He said, “In private equity investments of more than 400 trillion won, private investment is only 20 trillion won, so even if you take out the individual, 95% of the private equity market is alive.” The government thinks that the private equity market will collapse if individual investors do not enter. But it was not.”
◆Financial supervision, policy function rearrangement
It is steadily raised that the Financial Services Commission and the Financial Supervisory Service should improve the current situation of awkward cohabitation. It is to dismantle and reassemble the policies of the Financial Services Commission, supervision of the FSS and consumer protection functions.
Prof. Sang-Bong Han, professor of economics at Hansung University, said, “It is not possible to supervise financial companies and protect consumers.” It is correct to separate the Financial Consumer Protection Agency of the Financial Supervisory Service into a separate institution and combine the Financial Supervisory Service and the Financial Supervisory Service in the long term.” He said, “It is not possible to combine the two institutions at the moment, so it is realistic for the chairman of the bank to serve as the Financial Supervisory Service at this time.” Deuk-Eui Kim, president of the Financial Justice Association, said, “It is profitable to oversee financial companies and protect consumers.
Investor protection funds are also needed. Currently, it is a structure that victims of private equity funds have to hang for a long time to compensate for losses. The United Kingdom and the United States are helping to relieve victims of fraud and incomplete sales of private equity funds through related funds.
◆ Discussing alternatives for punishable damages and class action lawsuits
Disciplinary damages and class action systems are often cited as alternatives to scammed private equity problems. The aim is to broaden the road so that it is easy to remedy the damage, and not to be able to stop the crime itself with punitive damages.
Hyo-Seop Lee, a senior research fellow at the Capital Market Research Institute, explained, “In the United States, if an incomplete sale of a private equity fund is severely damaged, it is difficult to operate normally due to large fines imposed.” One of America’s major’multi-level financial fraud’ is the Fairfield Sentry Hedge Fund, set up by Bernard Maydorf. The company’s’blocking investments’ and incomplete sales were revealed to the world in 2009. The US federal court imposed a fine of $170 billion (approximately 204 trillion won) on Maydorf and sentenced him to the maximum sentence of 150 years in prison. All property was confiscated.
Deuk-Eui Kim, CEO of the Financial Justice Association, said, “If punitive damages are applied to the seller, product sales will be supervised and risk management will be thorough.” Disciplinary compensation is a post-response measure, but it can also be a precautionary measure.” Insisted.
On the other hand, Professor Lee Hwang of the University of Law at Korea University said, “If it turns out that the victims of private equity are not properly compensated in the existing legal system, it can introduce punitive damages.” However, the private equity accident recently skyrocketed. “It is too early to introduce punitive damages because we haven’t accumulated enough experience to judge whether the compensation has been sufficiently rewarded.”
There is also a view in the legal world that Korea’s continental law system and English-American punitive damages do not match. Continental law requires 100% reimbursement for economic damages within the limits of damages proven through procedures. The role division between criminal punishment and civil reparation is clear. The British-American Act believes that in addition to actual damages, social and policy damages must be compensated in the form of money.
Professor Lee explained, “It is true that in our legal system, it is easier to supplement the existing law so that damages are 100% easier than introducing a punitive damages system.”
In order to compensate for the damages of private equity funds, the poor return system for criminal profits must also be normalized. It is necessary to fix the lame collective lawsuit system applied to the product liability and securities sectors. Professor Lee emphasized that “the class action system must be brought in together with the discovery system.” With the introduction of the Discovery System, companies can be forced to submit internal evidence of consumer damage.
Reporter Song Eun-ah and Heejin Lee [email protected]
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