Shinhan Investment & Securities invested in a derivative-linked security (DLS) issued by NH Investment & Securities(005940) and, after incurring losses, sued to recover its investment, but lost at the first trial. The court acknowledged that NH Investment & Securities failed to sufficiently disclose investment risks, but found that the period for Shinhan Investment & Securities to claim damages had expired.
According to legal sources, the Civil Division 30 of the Seoul Central District Court (Presiding Judge Kim Seok-beom, Director General) on the 9th dismissed a lawsuit filed by Shinhan Investment & Securities against NH Investment & Securities seeking the return of unjust enrichment, among other claims.
Shinhan Investment & Securities argued that NH Investment & Securities should compensate 4.882 billion won for DLS investment losses, but the claim was not accepted.
In 2019, NH Investment & Securities issued a DLS based on a short-term fund for letters of credit in gold transactions operated by Wells Management Group (WMG), a Hong Kong asset manager. WMG and others would provide funds needed to open letters of credit for gold trading companies, and investors would receive their principal and revenue of about 4% per annum seven months later.
In Nov. 2019, Shinhan Investment & Securities invested 5 billion won, entrusted by a nonprofit corporation, in the fourth tranche of the DLS issued by NH Investment & Securities. The maturity was June 2020. The first to third DLS tranches issued earlier were repaid without issue.
However, in June 2020, a party related to the fund informed NH Investment & Securities that the recovery of the investment could be delayed due to postponed gold transportation caused by the COVID-19 situation. In July of the same year, it also conveyed that an unplanned 75.2 billion won ($51 million) coal transaction had taken place in Indonesia, and that fund recovery was uncertain because the coal was not delivered.
Due to delays in gold transactions and uncertainty in recovering funds from the coal transaction, the maturity was extended several times, but the investment principal was not repaid. Shinhan Investment & Securities filed a lawsuit against NH Investment & Securities in Oct. 2024.
Shinhan Investment & Securities argued that the investment funds were not used for the originally planned letter-of-credit transaction and were diverted to a separate Indonesian corporation, and that NH Investment & Securities knew of these risks but did not disclose them. It said NH Investment & Securities misled investors and also violated its duty to protect investors.
The court found that NH Investment & Securities did not fulfill its obligation to sufficiently inform investors of risk factors. However, it viewed it as difficult to conclude that NH Investment & Securities intentionally deceived Shinhan Investment & Securities to induce the investment.
The court also determined that the period to seek damages had passed. It found that by May 2021, when Shinhan Investment & Securities filed a separate unjust enrichment return suit related to the same product, it already knew of the investment loss and the responsible party.
Under the Civil Act, a victim who suffers damage from a tort must file a damages lawsuit within three years from the date of knowing the damage and the perpetrator. If, as the court held, Shinhan Investment & Securities learned of the occurrence of damage in May 2021, it should have filed suit by May 2024. However, this suit was filed in Oct. 2024, five months later.
A representative of Shinhan Investment & Securities said, "We respect the court's ruling as the case is in progress," but added, "We plan to appeal as there is room for legal dispute."