On Discovery US Fintech Global Bond Fund: Compensation for Damages and Contract Rescission
‘Discovery US Fintech Global Bond Fund’ (hereinafter referred to as ‘the fund’) is a private equity fund designed and issued by Discovery Asset Management, and sold through a number of channels including Hana Bank, Industrial Bank of Korea, Hana Financial Investment, Korea Investment Trust.
According to its sales materials, this domestically raised fund is invested in international small business loan receivables, mortgage-backed securities through complex and indirect layers of re-investment:
i) this fund invested in private sector bonds issued by DL Global (‘DLG’) in the United States.
ii) DLG above is invested in DLI Assets Bravo, managed by Direct Lending Investments (‘DLI’) in the United States
iii) Funds in DLI Assets Bravo appears to have invested in loan receivables through international loan platform or corporate bonds of special purpose company founded by loan platforms.
It seems inevitable to suffer extensive loss on investment principal, as this fund fell in court receivership for most of its assets and property which is confirmed to have lost 80% of its value.
We see that the following unlawful acts were committed during the process of its sale:
It appears that some sales companies stated as if this financial instrument preserves capital, principal and interest rate. It is highly probable that such statements are not true, which are also considered null. Therefore, it is likely that such acts are evaluated unlawful on the grounds that they cause misunderstanding by providing false or misleading material information.
Following events regarding investments of the fund occur in the United States in early 2019 according to press.
■ 1st event: Brendan Ross, CEO of DLI, notified investors of the fund that DLI will suspend redemption as VOIP Guardian Partenrs I, LLS (‘VOIP’) loan receivables have defaulted. VOIP-related defaults amounted to 25% of all investments.
■ 2nd event: Brendan Ross resigned from director and CEO of DLI as the SEC had launched an investigation against Ross and DLI. In March 19, 2019, DLI informed its investors that annual reports from 2014 to 2017 contains incorrect information regarding its investments in QuarterSpot and VOIP loan receivables and that Ross resigned from his positions followed by SEC’s investigation. The SEC filed a lawsuit against DLI in March 22, 2019.
The first event undermines reputation and credibility of DLI, the asset management firm of the fund, and the second event has a significant impact on investment including collateral. Despite such events, sales companies continued to push through its sales without revealing such critical information to investors.
It looks as if this fund is explained as a rather safe financial instrument on sales materials. Furthermore, some channels promoted this fund as ‘4% interest rate fixed,’ ‘just as safe as savings deposit.’ Investors of this fund are known to be risk-averse indeed. Therefore it seems likely that the sale of this fund violates principle of suitability, duty to protect investors including duty to explain and prohibition on undue recommendation.
Investors can take the following legal actions in tort cases: (1) claim investment compensation for damages against asset management firms and sales companies (2) claim investment worth of unjust enrichment following the rescission of investment contracts.
All of the above unlawful wrongdoings are considered grounds to hold asset management firms and sales companies liable for damages, and the first two are grounds for rescinding investment contracts and demand to return unjust enrichment against sales companies.
As such, we at Hannuri are going to take necessary legal steps on behalf of investors to hold sales channels including Hana Bank and Discovery Asset Management accountable to recuperate all of the investment losses.
In detail, we are going to (1) request a dispute resolution through the Financial Supervisory Service, (2) file civil lawsuits to claim unjust enrichment resulted from rescission of contracts as well as compensation for damages, and under strategic decisions file criminal complaints or accusations to unearth further facts of this case.