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Photo: Shinhan Investment Corp. |
[Alpha Biz= Paul Lee] Boram Sangjo People has filed an appeal against the first trial ruling in its damages lawsuit against Shinhan Investment & Securities concerning a 10 billion KRW trust product.
According to the financial investment industry on September 19, Boram Sangjo People appealed the July first-instance ruling that ordered Shinhan Investment & Securities to compensate 4 billion KRW out of the 10 billion KRW investment, citing partial breach of duty to explain product risks. Boram Sangjo People, however, rejected the judgment, and the case is expected to serve as a key test of the duty of explanation in overseas alternative investment products and the scope of protection afforded to professional investors.
On July 18, the Seoul Central District Court’s Civil Division 22 partially upheld the plaintiff’s claims in the damages suit related to the “Marriott in Las Vegas DLS Trust” sold by Shinhan Investment & Securities.
Boram Sangjo People, who invested 10 billion KRW as a professional investor, argued that the entire principal was lost following an Event of Default (EOD) in May 2020. The company sought cancellation of the contract and restitution of the principal, but the court did not recognize claims of contract invalidity or fraud. However, the court accepted that Shinhan Investment & Securities used misleading expressions during the sales process that could have distorted investors’ judgment.
Specifically, the court cited issues with the phrases “low loan-to-value (LTV)” and “definitive exit” in the investment proposal. Unlike conventional LTVs calculated based on the appraised value of collateral real estate, the disputed product calculated LTV using a discounted cash flow (DCF) method based on post-completion project value. The court held that emphasizing only the “low LTV” without sufficient explanation could mislead investors, and that the phrase “definitive exit” created the impression that refinancing success was guaranteed, downplaying uncertainties.
The court ruled that Shinhan Investment & Securities violated its duty of explanation and the prohibition on improper solicitation, and ordered compensation of 4 billion KRW. However, it rejected Boram Sangjo People’s claim that the contract itself was void, noting that the proposal had clearly stated the product was structured as mezzanine debt and that the deed-in-lieu (DIL) clause did not fundamentally alter the risk profile.
It has been reported that Shinhan Investment & Securities initially offered partial settlements to some investors, compensating 55–70% of their principal, but failed to reach agreement with Boram Sangjo People, leading to the legal dispute.
In the second trial, the scope of Shinhan’s explanatory obligations and whether it knowingly downplayed the complexity and risks of the investment structure will be in contention. Another focal point will be the extent to which Boram Sangjo People, recognized as a professional investor, is entitled to protection under financial investment regulations.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
