Former Financial Supervisory Service Governor Lee Bok-hyun leads a legal team representing JTBC bond victims and alleges securities firms mis-sold bonds to retail investors, while South Korea's Financial Supervisory Service launched inspections of Shinhan Investment & Securities and Kiwoom Securities on May 2. The legal team held a press conference on May 13 at the Seoul Jongno-gu Bar Association Hall and reported 250 claimants with 32.52 billion KRW in damages, though self-reported estimates reach 450 individual accounts and approximately 76 billion KRW. The team claims JTBC was near full capital erosion at the time of bond issuance and alleges underwriters knew the risks but sold the products to individual investors anyway. South Korean financial regulators are examining whether securities firms violated investor protection duties under capital markets law.
Legal Team Alleges Shinhan Investment & Securities and Kiwoom Securities Knew JTBC Risks
The victim legal team submitted an inspection request titled "Financial Company Inspection Opinion on JTBC Corporate Bond and Electronic Short-Term Bond Issuance" to the Financial Supervisory Service on May 10. The team alleges that Shinhan Investment & Securities, as lead underwriter, documented capital erosion and accumulated losses in its corporate due diligence report but then stated in the investment prospectus that principal and interest repayment would be smooth based on the possibility of affiliate support. The legal team claims risk factors were excluded from IR materials delivered to investors and that safeguards in the secondary market did not function properly to inform investors of risks.
Regarding Kiwoom Securities, the legal team questions whether investment risk explanations were sufficient during the sale of electronic short-term bonds and whether the firm guided or induced investors to register refusal of confirmation calls. The team called on financial authorities to expand inspection targets beyond Shinhan and Kiwoom to include Hanyang Securities (which underwrote electronic short-term bonds), securities firms that brokered exchange trading, discretionary investment firms, and credit rating agencies.
Lee Bok-hyun stated that it is questionable whether ordinary investors received sufficient explanations about the nature of hybrid capital securities and financial burden risks. He said the legal team will hold accountable why underwriters and advisors did not properly review information confirmable through public disclosures. Lee emphasized that according to recent Supreme Court precedent, lead underwriters may bear certain responsibilities not only to direct investors but also to investors who purchased in the secondary market, and that if information with a material impact on investment decisions is confirmed even after underwriting duties end, it must be disclosed to the market in an appropriate manner.
Shinhan Investment & Securities Denies Wrongdoing and JTBC Rejects All Allegations
Shinhan Investment & Securities responded that it conducted necessary corporate due diligence according to available information, relevant laws, and internal procedures at the time, and that the investment prospectus was prepared based on information available at the time. The firm stated that risk factors necessary for investment decisions can be confirmed through the publicly disclosed investment prospectus.
JTBC denied the legal team's allegations entirely. JTBC stated that it disclosed its financial situation in accordance with corporate accounting standards and complied with capital markets law. The company rejected claims that it avoided full capital erosion through a 40 billion KRW hybrid capital securities issuance just before settlement, calling it lawful accounting treatment. Regarding the 33 billion KRW loan to subsidiary Studio Aye Joongang, JTBC explained that 13 billion KRW was essential entertainment production costs and 20 billion KRW was a conversion of existing debt guarantee securitization receivables into loans with no actual fund outflow.
FSS Inspects Shinhan and Kiwoom for Investor Protection Duty Compliance
The Financial Supervisory Service launched inspections of Shinhan Investment & Securities and Kiwoom Securities on May 2. The FSS is examining whether the firms fully recognized the possibility of JTBC's financial deterioration yet still issued corporate bonds, whether they properly explained risks to investors, and whether corporate due diligence and internal controls were appropriately conducted.
FSS Governor Lee Chan-jin previously stated that the agency is checking whether Joongang Group commercial paper and corporate bonds were appropriately issued and will convert the review to an inspection if necessary. Lee said that bonds appear to have been issued and sold to individual investors right up until default, which is a very unfair situation from the investor perspective.
Industry observers expect that if the FSS inspection confirms violations of explanation duties by the lead underwriter and selling firms, legal disputes over the scope of mis-selling recognition and liability for damages will expand further.
FAQ
What did the JTBC bond victim legal team allege on May 13?
The legal team, led by former FSS Governor Lee Bok-hyun, held a press conference on May 13 and alleged that Shinhan Investment & Securities and Kiwoom Securities mis-sold JTBC bonds to retail investors despite knowing JTBC was near full capital erosion at issuance. The team reported 250 claimants with 32.52 billion KRW in damages and submitted an inspection request to the FSS on May 10.
How did Shinhan Investment & Securities respond to the mis-selling allegations?
Shinhan Investment & Securities denied wrongdoing and stated it conducted necessary corporate due diligence according to available information, relevant laws, and internal procedures at the time. The firm said the investment prospectus was prepared based on information available at the time and that risk factors necessary for investment decisions can be confirmed through the publicly disclosed prospectus.
What is the FSS inspecting regarding the JTBC bond case?
The Financial Supervisory Service launched inspections of Shinhan Investment & Securities and Kiwoom Securities on May 2. The FSS is examining whether the firms fully recognized JTBC's financial deterioration risks yet still issued and sold bonds to individual investors, whether they properly explained risks, and whether corporate due diligence and internal controls were appropriately conducted.
