Mirae Asset Securities Co., South Korea’s largest brokerage firm, found in June that a senior manager at its alternative investment division had fabricated a contract in January 2021 to pledge $210 million in loans for a renewable energy project in Las Vegas, Nevada, according to investment banking sources on Tuesday.
The then-director of Mirae Asset had sought to lend money to build renewable diesel fuel facilities in the US by selling down the loan product to institutional investors.
Rise Renewables, a bio-fuel facility developer, is leading the project.
The loan commitment, contained in about a 30-page document, was signed before the company's investment review committee examined it, Mirae Asset's internal audit found.
The unidentified ex-director failed to carry out the deal, however, due to the committee's rejection of the loan investment.
The contract forgery came to the surface after Rise Renewables demanded earlier this year that Mirae Asset fulfill the loan contract.
Mirae Asset dismissed the employee involved in the case in August this year. But it could be held liable for failing to lend the pledged money.
Las Vegas (Getty Images) REPERCUSSIONS
The scandal at Mirae Asset will likely have repercussions for the alternative investment sector, given that the misconduct was committed by a senior alternative investment manager at the country’s largest brokerage company.
It could further weaken investor interest in alternative assets such as real estate and infrastructure, as some of them are underperforming public markets amid prolonged high interest rates.
The ex-Mirae Asset employee was also found to have tried to form a pool of lenders via a special purpose company to raise $50 million for the Rise Renewables-led energy project. That plan also backfired for unknown reasons.
Hoover Dam in Nevada (Getty Images) Mirae Asset has reported the case to the regulatory Financial Supervisory Service (FSS) for investigation. It will also turn over the former employee to the police for questioning.
The securities house claimed the loan contract forgery was an act personally conducted by an employee and there were no financial damages.
BLIND SPOT
From the late 2010s until the early 2020s, overseas alternative assets had attracted heavy inflows of money from big asset owners thanks to decent returns.
Such an alternative investment boom produced hefty fee incomes for brokerage companies. However, the niche market for investors remained a blind spot for regulators.
Alternative asset managers share very little information among themselves if they deal with different types of assets, according to market observers.
Some Korean alternative asset brokers were blamed for selling down underperforming assets to institutional investors, who had little knowledge of the asset classes, only for the purpose of earning fees.
However, market observers said their misconduct was covered up by the companies letting go of the employees involved without taking disciplinary action.
