The prosecution on Friday raided two brokerage houses in connection with a snowballing financial fraud scandal involving a hedge fund, officials said.

Investigators from the Seoul Southern District Prosecutors Office raided the headquarters of Shinhan Investment Corp. and Korea Investment & Securities Co. in western Seoul to secure materials related to Lime Asset Management.

Shinhan faces disciplinary action from the Financial Supervisory Service for misselling Lime funds.

Lime is under probe over its alleged cover-up of massive losses and subsequent suspension of fund redemption worth an estimated 1.6 trillion won (US$1.39 billion).

The case is developing into a high-profile lobbying scandal, in which former and incumbent high-ranking government officials and politicians are embroiled.

Earlier this week, the prosecution raided KB Securities, which also distributed Lime funds. (Yonhap)