The Financial Supervisory Service said Wednesday that Optimus Asset Management, a local hedge fund house involved in an alleged fraud case, has incurred at least 436.3 billion won ($393 million) in financial losses that effectively went nowhere.

The loss stems from the hedge fund manager’s botched real estate development project financing and failed investments in stocks and bonds, as well as its embezzlement and Ponzi scheme, according to the watchdog.

The revelation comes as four months of due diligence by Seoul-based accounting firm Samil PricewaterhouseCoopers showed that some 92 percent of the 514.6 billion won in total assets Optimus managed through 46 funds will not to be salvaged for end-investors.

What can be retrieved to fund investors ranges from Optimus’ cash reserves and deposits to three normal funds that are to be transferred to another asset management company. The volume of assets that remains intact ranges from 40.1 billion won to 78.3 billion won, according to Samil PricewaterhouseCoopers’s estimate.

This contrasts with an estimate by the funds’ biggest seller NH Investment & Securities on Wednesday that up to 110 billion won could be retrieved from Optimus investment. 

Samil PricewaterhouseCooper said part of the assets Optimus managed was not subject to due diligence as the hedge fund company had either embezzled it or used the funds to redeem earlier investors’ money with money taken from later investors.

The due diligence also revealed that Optimus has invested 351.5 billion won combined. A third was used to finance real estate development projects, more than half of which are still pending. Another third went to listed stocks, most of which have been delisted or are suspended from trading now, according to the result. The remainder went to privately held securities or loans.

The loss of investment is projected to range from 287.2 billion won to 325.4 billion won, the due diligence also showed.

This comes as a series of alleged financial frauds here involving Korean hedge fund managers have been feeding public distrust toward private funds. The court proceedings so far indicate that these funds can be exploited by scammers due to looser oversight by financial authorities, if the funds are disguised as normal. 

Findings also indicated that political figures were allegedly linked to the scheme by joining its board.

Optimus is alleged to have duped fund sellers and investors into such scams, hiding the true targets of investments. Affected by the scheme are some 979 retail investors and 184 corporations, including listed companies and universities, according to data compiled by the main opposition People Power Party Rep. Yun Chang-hyun in July.

Along with Optimus, Lime Asset Management’s alleged scam is also under the spotlight, as sellers of the Lime private funds are facing scrutiny.  

FSS unveiled Tuesday that its advisory panel recommended FSS Gov. Yoon Suk-heun that sellers Shinhan Investment, Daishin Securities and KB Securities be imposed disciplinary actions such as fines, partial suspension of business, dismissal of employees and closure of brick-and-mortar branches. Upon Yoon’s approval, the recommendation will be reviewed by the regulator Financial Services Commission.

By Son Ji-hyoung (consnow@heraldcorp.com)