Complete victory in a lawsuit concerning the refund of acquisition payments in a private derivative-linked security (DLS) worth KRW 30 billion

On behalf of KB Securities, Lee & Ko secured a complete victory against NH investment Securities in both the first instance and appellate courts for the return of the acquisition payment for a private derivative-linked security (DLS) worth KRW 30 billion. 

In 2018, KB Securities acquired DLS linked to underlying preferred shares issued by a corporate fund managed by a Singapore-based asset management company, from NH Investment Securities for approximately KRW 33 billion. It then sold the DLS to general investors who entered into specified money trust agreements with KB Securities.

At the time of the DLS sale, NH Investment Securities stated that the asset management company of the underlying asset issuance fund would invest the acquisition payment for the DLS in a Brazilian hotel construction project. The company also stated that purchasing an insurance policy with Chinese Sunshine Insurance shall be a term of issuance for the underlying assets to guarantee the recovery of the investment principal and interest. However, the asset management company purchased insurance policy from a different provider, and the insurance payment was not made when the hotel construction project eventually failed. 

In 2021, representing KB Securities, Lee & Ko filed a lawsuit against NH Investment Securities for breaching the terms of issuance of the DLS related to the underlying assets, seeking a full refund of the investment. Both the first instance and appellate courts upheld Lee & Ko’s argument that the terms were breached when an insurance policy different from the one specified in the DLS issuance agreement was purchased, thereby necessitating the return of the DLS acquisition payment. 

Lee & Ko’s victory is particularly noteworthy, as it is extremely rare for an investor to win a lawsuit in its entirety in cases involving financial investment products among institutional investors. Yet, through an accurate understanding of the transaction structure of the DLS product and an acute analysis of the underlying assets’ significance in the DLS issuance agreement, Lee & Ko secured complete victories in both levels of the court. We are currently representing the client in the appeal before the Supreme Court. 

This decision is expected to significantly contribute to clarifying the scope of liability for companies that issue DLSs and deterring the distribution of high-risk financial investment products that deviate from investment disclosures, preventing the creation of innocent victims.