CONTENTS
- 1. Private Equity Fund | Overview of the Incomplete Sale of a Private Equity Fund
- - Summary of the Issues
- 2. Private Equity Fund | The Corporate Attorney's Response Strategy
- - Rebutting the Claim That Liquidation Was Impossible
- - Rebutting the Qualified Investor Argument
- - Emphasizing That This Constituted Mis-Selling
- 3. Private Equity Fund | Case Outcome: Financial Institution Found 100% Liable
- - The Concept of Mis-Selling
- - Key Points of the Case
- - Why Professional Assistance Is Essential
1. Private Equity Fund | Overview of the Incomplete Sale of a Private Equity Fund
A private equity fund is a financial product with a complex structure and a high risk of loss of principal, and a financial institution bears a duty to recommend a product suited to the investor's situation and to provide a sufficient explanation.
In particular, where there is financial vulnerability, as in the case of an elderly investor, this duty is required all the more strictly.
The client in this case was an elderly individual investor who came to invest in a private equity fund at the recommendation of a securities firm employee introduced through a bank.
At the time, the client invested an amount of approximately 300 million won in the form of a specified money trust, and those funds were incorporated into a real estate private equity fund.
A dispute with a tenant arose and some business premises closed, however, and the problem emerged as the fund's revenue structure collapsed.
As a result, even though the fund had reached maturity, the assets were not sold, and the investment in the private equity fund was likewise not returned.
The client requested the return of the investment after maturity, but the securities firm refused payment on the ground that the fund assets had not been liquidated, and the client came to this firm to seek assistance.
Summary of the Issues
The core of this case lay not only in the investment loss itself but also in whether the financial institution had recommended a suitable product to the investor and in how the obligation to return the investment funds should be interpreted.
The securities firm argued that, because the fund had been converted to an unredeemed status and its assets could not be liquidated, it could not pay out the investment funds.
It further denied any obligation to make a return at all, arguing that issuing beneficiary certificates was also impossible on the ground that the investment funds fell short of a certain threshold.
In response, the corporate attorney representing the client argued that, once the contract had reached maturity, the financial institution was required to liquidate the trust assets and return the investment funds, and asserted liability centered on the fact that sufficient explanation had not been provided at the time of the investment.
2. Private Equity Fund | The Corporate Attorney's Response Strategy
In order to seek the return of the incompletely sold private equity fund from the financial institution, the attorney filed a claim for an agreed sum and a claim for damages against the financial institution, providing assistance as follows.
Rebutting the Claim That Liquidation Was Impossible
The corporate attorney first focused on rebutting the securities firm's argument that liquidation was impossible.
that the trust agreement had already terminated upon reaching maturity, and that under the structure of the contract, termination gives rise to an obligation to liquidate the assets and return them to the investor.
The attorney further pointed out that because the fund held physical assets such as real estate, the sale of only a portion of those assets would have been sufficient to secure the funds for redemption, and that refusing the return without properly examining this option could not constitute a legitimate ground.
Rebutting the Qualified Investor Argument
The attorney next addressed the securities firm's argument concerning the ‘qualified investor’ standard.
The attorney emphasized that the regulation imposes a restriction that applies only at the stage of a new investment, and that it cannot apply at the settlement stage of a contract that has already been concluded, thereby foreclosing the firm's argument for avoiding the return.
Emphasizing That This Constituted Mis-Selling
The corporate attorney reframed the central issue of the case as one of ‘mis-selling.’
In particular, the attorney concentrated on proving that an ultra-high-risk private equity fund had been recommended to an elderly investor, that a product unsuited to the investor's objectives had been offered, and that no sufficient explanation had been given regarding the possibility of principal loss and the structural risks involved.
The attorney also emphasized that the fund was structured with excessive reliance on a particular tenant and was designed with insufficient liquidity, thereby highlighting the financial institution's responsibility.
3. Private Equity Fund | Case Outcome: Financial Institution Found 100% Liable
The court took issue with the fact that the financial institution had recommended an ultra-high-risk product to an elderly investor without sufficiently ascertaining the investor's circumstances, and it found violations of the duty to explain and the suitability principle under the Financial Investment Services and Capital Markets Act.
Significantly, the court departed from prior practice by declining to attribute any portion of fault to the investor and instead holding the financial institution fully liable.
As a result, the court ordered the institution to pay the full amount of approximately 300 million won, representing the principal investment less a portion of the gains.
Although the financial institution retained a large law firm and contested liability from multiple angles, the court accepted the corporate attorney's arguments, rejected all of the institution's contentions, and upheld the client's claim in its entirety.
The Concept of Mis-Selling
In the context of private equity funds, mis-selling refers to cases in which a financial institution fails to properly fulfill the legally required duties in the course of selling a financial product to an investor.
Typical examples include recommending an unsuitable product without regard to the investor's financial situation, investment experience, and risk tolerance, failing to sufficiently explain core matters such as the product's structure and the possibility of principal loss, or providing information in a manner that may mislead the investor.
The Financial Investment Services and Capital Markets Act imposes the suitability principle and the duty to explain on financial institutions, and where these are violated, an investor may claim damages.
In particular, a higher level of explanation and protection is required for elderly investors and investors with limited financial knowledge, so that where such a breach of duty is established, the financial institution may be held substantially liable.
Where the return of a private equity fund investment is delayed or mis-selling is suspected, the initial approach is highly important.
- Securing materials from the time of investment, such as the investment contract, explanatory materials, recordings, and text messages
- Analyzing the product structure and the cause of the loss
- Reviewing whether the duty to explain and the suitability principle were violated
- Sending a certified written demand to the financial institution and requesting the return
- Pursuing dispute mediation through the Financial Supervisory Service or proceeding with civil litigation
- Where necessary, considering a criminal complaint and an additional claim for damages
Key Points of the Case
This case demonstrates that even when a loss arises from an investment in a private equity fund, the investor does not necessarily bear all of the responsibility.
Where a financial institution recommends an unsuitable product without regard to the investor's circumstances, or fails to sufficiently explain the product's structure and risks, liability for damages may be established.
In particular, where the need for protection is high, as with elderly investors, the financial institution's responsibility may be assessed even more heavily, and, as in this judgment, full compensation for the entire amount of the loss may be recognized.
Why Professional Assistance Is Essential
Private equity fund disputes are an area in which the contractual structure, the Financial Investment Services and Capital Markets Act, and the question of mis-selling all operate in a complex interplay.
Daeryun, the ninth-largest law firm in Korea (based on 2025 National Tax Service value-added tax filings), draws on its expertise in the financial and capital markets fields to analyze and respond to cases in an integrated manner, encompassing investment recovery litigation, claims for damages, and responses to criminal proceedings.
Where the return of a private equity fund investment is delayed or mis-selling is suspected, setting the initial approach can have a significant effect on the outcome.
If you require assistance with a related matter, you are welcome to submit a request through the 🔗Legal Consultation Booking page, where legal professionals across multiple fields provide one-stop legal services.
This content is based on actual case studies of Daeryun Law LLC with some adaptations, and the copyright belongs to our firm.
Unauthorized reproduction, duplication, or distribution and other copyright infringements may result in legal action under applicable laws.
