Lime Fund Mis-selling Supreme Court Decision

This case originates from the 2019 Lime Asset Management fund redemption crisis, where approximately 1.6 trillion won was frozen, causing severe losses for retail investors. Many investors purchased these funds through major Korean banks after being told they were low-risk, deposit-like products. When the funds collapsed, investors sued the banks for insufficient risk disclosure and improper solicitation. Lower courts ruled partially in favor of the investors, finding the banks violated their statutory duty to explain and ordered partial compensation. On May 20, 2026, the Supreme Court delivered its final judgment, acknowledging that the banks’ explanations fell short of legal requirements but concluding that the conduct did not constitute active deception or fraud. The court emphasized the investors’ own responsibility for investment decisions, reduced the compensation ratio set by lower courts, and firmly rejected claims for punitive damages. The ruling is a landmark in defining the boundaries of financial institutions’ liability for mis-selling complex funds.

The Supreme Court partially upheld the lower courts’ rulings, confirming that the banks’ explanations were inadequate and violated the duty to explain. However, it overturned findings of intentional fraud, significantly reduced the compensation amounts payable to the investors, and denied any form of punitive damages, holding that the investors bore a share of the responsibility.

Whether the defendant banks fully discharged their duty of explanation and suitability obligations under the Capital Markets Act, and whether their insufficient risk disclosure constituted actionable fraud or merely a regulatory violation, thereby determining the scope of civil liability and damages.

The decision ignited widespread public criticism and concern over weakened investor protections, with consumer groups arguing it lets financial institutions off the hook for aggressive misselling. It prompted intense debate in the National Assembly over the need to strengthen the Financial Consumer Protection Act and impose stricter obligations and harsher penalties on sellers of complex investment products, while banks welcomed the clarity on limiting long-tail liability.