Most of the shady profit-taking took place with the wrap accounts.(image: Kobizmedia/Korea Bizwire)
SEOUL, Nov. 14 (Korea Bizwire) — A congressional investigation revealed that some of the securities firms took improper profits from government funds entrusted to them. The office of Congressman Kim Yong-nam (New Frontier Party) said this on November 12, based on an analysis of the transaction details of Hyundai Securities for government funds between 2008 and 2013.
According to the enquiry, Hyundai Securities has managed funds from four government agencies including the Ministry of Employment and Labor (unemployment insurance fund and workers’ compensation fund), the Korea Post (postal deposits and Korea Post insurance fund), the Ministry of Strategy and Finance (lottery fund), and the Ministry of Land, Infrastructure, and Transport (national housing fund). Of the 30-trillion-won funds, 16 trillion won was in trust accounts and 14 trillion won was in wrap accounts.
Most of the shady profit-taking took place with the wrap accounts. The wrap account balance with the securities house has ballooned to 72 trillion won as of the end of August this year from about 10 trillion won in 2008. Of this, as much as 50 trillion won is estimated to be from the government agencies. Hyundai Securities took profit by buying commercial paper at artificially high prices and selling it at lower prices than market value for the government clients. The difference was credited to the individual customers’ accounts with which the firm has special relationships.
Most of the transactions made by financial institutions are bound by law to be made in accordance with market price. As for transactions of commercial paper and asset-backed commercial paper made through wrap accounts, however, there is no such regulation. That’s how the securities firm took advantage of the loopholes.
Lawmaker Kim said, “If you investigate all the securities companies in charge of government funds, you will find more of such egregious cases. Maybe the loss would be in excess of several hundreds of billion won or even 1 trillion won. To this deplorable situation, the government’s financial authorities and the police must begin thorough investigations immediately.”
To this, Hyundai Securities responded, “It is true that we sold and bought commercial paper at prices different from market value. But the congressman’s claim that the amount is over 120 billion won is exaggerated. We don’t think we incurred losses to the funds because we complied with the rule on minimum returns we signed with the government agencies.”
By Sean Chung (schung10@koreabizwire.com)
