The issue of ethics and codes of conduct in the financial industry has returned to the spotlight in the wake of the cash-strapped Tong Yang Group’s woes, two years after the secondary savings bank scandal yielded a huge number of victimized depositors.
Over the past year, Tong Yang Securities allegedly actively attracted retail investors for corporate bonds and commercial paper that were issued by some of its nonfinancial Tong Yang affiliates.
Market insiders and the political sector are raising the possibility that the conglomerate’s brokerage unit had pushed for the sale of its sister firms’ bond and CP products without informing individuals of the investment risks.
The Democratic Party alleged on Wednesday that the group exploited the high-risk CP and bonds through its brokerage channels “in an effort to make up for the liquidity crises of some nonfinancial units.”
The main opposition DP likened the situation to the 2011 savings bank industry woes, saying that financial regulators should also be held accountable for negligent supervision.
Even after the group saw its financial soundness sharply worsen in September, Tong Yang Securities management reportedly instructed its employees to continue to sell affiliate firms’ CP.
The CP products were collateralized by shares of Tong Yang Cement & Energy, but the cement producer unit was placed under court receivership earlier this week along with four other Tong Yang units.
“The case shows typical side effects when manufacturing industry capital owns financial subsidiaries,” a local commercial banker said. “We should remember that CEOs’ ethical breach had triggered the overall insolvency of savings banks.”
While some civic groups are preparing for class action suits, the Financial Consumer Agency said it would ask the prosecution and financial regulators to investigate the Tong Yang CP woes.
The FCA also alleged that Tong Yang Group engaged in irregular accounting practices, pledging to take legal proceedings against the conglomerate, group management and some employees.
“The number of consumer petitions has surpassed 10,000. As financial regulators have responsibility for causing the incident, they should conduct a full-fledged probe into financial products issued and sold by Tong Yang affiliates,” said a spokeswoman of the consumer advocate.
According to data by the Financial Supervisory Service and research analysts, 46,000 retail investors are assumed to have suffered collective losses of an estimated 2.3 trillion won ($2.1 billion).
Tong Yang Group has been saddled with maturing debt worth 1.1 trillion won and its debt-to-equity ratio exceeded 1,500 percent as of the first half of this year.
