Victims of JoongAng Group bond investments, including JTBC, alleged misselling and urged the financial authorities to expand inspections not only into Shinhan Investment, the lead manager of the bond issuance, but also Hanyang Securities, on-exchange brokerage firms, discretionary investment managers, and credit rating agencies. They said they will file criminal complaints if necessary.
The legal team representing JoongAng Group bond investment victims held a press conference on the morning of the 13th at the Lawyers' Hall in Jongno-gu, Seoul, and said it submitted on the 10th its opinion to the Financial Supervisory Service calling for inspections of the financial companies involved. The legal team consists of attorneys Yun Je-seon, Shin Dong-hwan, and Han Ji-hye of law firm Changcheon; attorney Lee Bok-hyun, a former head of the Financial Supervisory Service; and attorney Dan Sung-han, a former head of the Seoul Southern District Prosecutors' Office Joint Securities Crime Investigation Unit.
The legal team said Shinhan Investment, Kiwoom Securities, and others issued, distributed, and sold JTBC corporate bonds and commercial paper (CP) without properly examining the financial condition and without adequately informing investors of the expected risks.
Specifically, regarding Shinhan Investment, the lead manager of the JTBC bond issuance, the legal team said that while its due diligence report listed risks such as JoongAng Group's capital impairment and concentration in short-term borrowing, it concluded that "principal and interest repayment would be smooth" and went ahead to manage the issuance. The on-site due diligence was also said to have been replaced by a one-day conference call.
The legal team also said that during the sale of the relevant CP by Kiwoom Securities, trading continued on the securities firm's app without any risk notices from the March 31 disclosure confirming capital impairment until just before default. The exchange's advance notice designating it as an "investment caution bond" did not occur until June 16 this year, after the default rehabilitation filing.
Attorney Shin Dong-hwan of law firm Changcheon said, "The crux of this crisis is that a corporate bond packaged as investment grade went into default just four months after issuance," noting, "Shinhan Investment collected about 650 million won in combined underwriting and managing fees for the bond issuance," and "also secured a joint bookrunner role for SLL JoongAng's initial public offering (IPO)."
According to the legal team, excluding 154.4 billion won in hybrid capital securities classified as capital, JTBC's actual total equity was minus 135.4 billion won, effectively a state of complete capital impairment. However, last September, affiliates purchased 40 billion won of these hybrid capital securities just before the settlement of account, allowing JTBC to avoid complete capital impairment.
Attorney Lee Bok-hyun said, "The reason I took on this case, as someone who previously served in public office, is that after reviewing the credit rating companies' assessment reports and the offering circulars, I questioned whether the manufacture and distribution of financial products in this form are appropriate," adding, "If necessary, we will ask the Financial Supervisory Service (FSS) to investigate issues regarding JoongAng Group or the fund managers of its subsidiaries, or proceed with criminal procedures if needed."
Individual JTBC bond investment victims also attended the press conference. One individual investor said, "Trusting only the IR materials distributed by Shinhan Investment, I recommended the investment to my son, and in an instant his account showed '0 won,'" adding, "I never imagined a broadcaster known by every citizen of Korea would go under." Another investor said, "The prospectus I reviewed carefully said principal and interest repayment would be smooth," and added, "A thorough investigation is needed into whether investors received sufficient explanations during the corporate bond issuance and sale process."
So far, 286 individual investors have reported damages to the legal team, with cumulative losses of 32.52 billion won. However, according to the legal team's own tally, there are over 450 individual accounts that participated in JoongAng Group corporate bonds, with participation totaling 76 billion won.
JoongAng Group's financial crisis began when JTBC on the 12th of last month declared a default after failing to repay on maturity 20.6 billion won in securitized borrowings. Two days later, on the 14th, JoongAng Holdings, Contentree JoongAng, JoongAng P&I, and Megabox JoongAng, and on the 15th, JTBC filed for commencement of rehabilitation proceedings. The court, in JTBC's case, accepted an application for the Autonomous Restructuring Support (ARS) program and deferred commencement of rehabilitation, while deciding to commence rehabilitation proceedings for the other four.