Regulators Revoke Licenses of Two Asset Managers That Pocketed Investors' Money

Two asset management firms that used investors' money for public stock offerings as they pleased have ultimately lost their business licenses. At its regular meeting on the 23rd, the Financial Services Commission decided to revoke the licenses and registrations of Silla Asset Management and Zenith Investment Advisory, the highest level of sanction permitted under the regulations.

After numerous complaints were filed alleging that the two firms received investors' funds to handle public stock subscriptions but failed to return the principal, the Financial Supervisory Service launched inspections. The inspections confirmed that both firms failed to conduct the licensed or registered business activities and also violated their obligation to maintain minimum net capital.

Silla Asset Management had its license for public fund management and its registration for general private fund management revoked. The firm was fined 1.494 billion won for filing false disclosures of business reports that violated accounting standards and for failing to disclose and report major management conditions. A separate surcharge of 20 million won was imposed for violating restrictions on credit extension to major shareholders.

Zenith Investment Advisory also had its registrations for investment advisory and discretionary investment services revoked for failing to conduct its registered business and violating minimum net capital requirements, among other violations. The firm was fined 1.28 billion won for false disclosures of business reports.

Measures were also taken against executives. A former executive of Silla Asset Management received a notification of illegal and improper conduct — equivalent to a dismissal request — for violations of accounting standards, breach of the minimum net capital obligation, and false disclosure of business reports. Current and former executives of Zenith Investment Advisory were subject to dismissal requests or equivalent notification measures for the same reasons.

As a result of the sanctions, the two firms can no longer conduct their respective businesses. The FSC and FSS plan to strengthen management and supervision of asset management, investment advisory, and discretionary investment firms and to apply strict follow-up sanctions for violations. The inspections confirmed that small and mid-sized management and advisory firms with limited capital are more vulnerable to the misappropriation of investors' funds.