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The White-Collar Crime Practice Group at Lee & Ko achieved a significant victory representing Company A, a leading domestic securities firm, which had been accused by several complainant companies of violating the Act on the Aggravated Punishment of Specific Economic Crimes and the Capital Markets Act. The allegations stemmed from the sale of financial products tied to mezzanine loan receivables associated with a Las Vegas resort development project in the U.S. The complainants alleged that Company A failed to properly explain the concept of “DIL (Deed in Lieu)”, a method of collateral realization unique to U.S. mezzanine loan structures. Despite these claims, Lee & Ko successfully secured a full non-prosecution decision from the Seoul Central District Prosecutors’ Office. Lee & Ko also prevailed in defending against the complainants’ appeals and petitions for adjudication before the Seoul High Prosecutors’ Office and the Seoul High Court, resulting in the dismissal of all related challenges.

This case involved the unforeseen outbreak of the COVID-19 pandemic, which led to the suspension of the Las Vegas resort development project. As a result, defaults occurred sequentially on both the senior loan and the mezzanine loan associated with the project. Ultimately, the senior borrower executed a DIL, transferring the development property, which served as collateral, to the lender. Consequently, the mezzanine loan could not be recovered, leading to a complete loss of the investment in the financial product related to this case, which was worth tens of billions of Korean won.

In this case, Lee & Ko’s White-Collar Crime Practice Group conducted an in-depth analysis not only of Korea’s Capital Markets Act but also of U.S. legal literature and Nevada state law. Lee & Ko argued in detail before the prosecution that a DIL is not a special provision in the loan agreement but a commonly used legal mechanism in the U.S., and therefore not a critical factor in deciding whether to invest in the financial product. They further demonstrated that the DIL-related provision in the relevant contractual documents had no connection to the decision to invest in the financial product or to the resulting investment loss. Lee & Ko also presented that investing in mezzanine debt inherently carries the risk of principal loss, and the complainants were fully informed of this risk. As such, there was neither any deceptive act constituting fraud nor any use of unfair means, schemes, or artifices under the Capital Markets Act. By establishing these facts, Lee & Ko successfully cleared its client of criminal liability. As a result, Company A secured a more favorable position in the related civil litigation as well.
 

Lee & Ko provided legal advice on a transaction in which SK On Co., Ltd. issued new shares worth approximately KRW 1 trillion to financial investors (FIs), including Korea Investment & Securities, Shinhan Bank, Shinhan Securities, and KB Securities. This transaction was completed through a share price return swap (PRS) concluded between the FI investors and SK On’s largest shareholder, SK Innovation Co., Ltd., regarding the newly issued shares acquired by the FI investors.

This transaction drew significant market attention due to several factors: ① the issuance of new shares and the related derivative transaction based on the new shares were interconnected, ② major domestic financial institutions participated as investors, and ③ the scale of the new share issuance by SK On, amounting to approximately KRW 1 trillion, made it one of the largest deals in terms of new investment attraction. The transaction was considered pivotal for SK On, as it enabled the company to secure substantial capital, laying a foundation for the continuous growth of its battery business.

Lee & Ko provided advice throughout the entire process, from reviewing the transaction structure to negotiating and executing the relevant contracts. Despite the complexity of the transaction, which involved various issues under the Commercial Act and the Capital Markets Act, as well as negotiations with multiple FIs, the firm successfully provided timely advice that ensured the swift and efficient completion of the transaction.

Lee & Ko represented the defendants in a USD 227 million fund fraud case, which attracted much attention nationwide. Lee & Ko obtained a non-guilty verdict in the first and appellate court and is currently representing Discovery Asset Management Co., Ltd.(“DAM”), its executives and employees in the supreme court.

The prosecution indicted Discovery Asset Management Co., Ltd.(“DAM”), its executives and employees on the grounds that i) DAM managed the global fund of funds, which made an investment in U.S. P2P loans with high credit risk, but deceived investors by guaranteeing high returns; and ii) as Direct Lending Investments, which managed U.S. P2P loan products, went bankrupt, DAM failed to respond to all of the resell requirements, which came to a total of USD 227 million, leading to significant damages for the investors. 

On behalf of DAM, its executives and employees, Lee & Ko set up a T/F Team consisting of the attorneys from the litigation group, the criminal practice group, and the capital market compliance group, and argued that DAM was not able to acknowledge high credit risk of U.S. P2P loans by i) pointing out that under the Financial Investment Services and Capital Markets Act, a breach of the duty of care is legally distinct from intention in the context of a criminal offence; and ii) thoroughly analysing the management of U.S. P2P products, and the accounting principles in the U.S., among others. In December 2022, the court agreed with the arguments put forward by Lee & Ko and found DAM, all of its executives and employees not guilty. Likewise, in February 2024, the appellate court ruled that the lower court’s decision was justified.

How to distinguish the duty of care and intention in a criminal offence was the main issue in this case, and this court decision is expected to serve as an important precedent for similar cases in the future. Meanwhile, this case attracted a great deal of media attention, not merely due to the amount of damages, but because the representative director of DAM was a relative of a high ranking government official.