South Korea’s Hana Bank won an appellate court battle against Korea Investment & Securities Co. and Shinhan Investment Corp. on Aug. 18 over the payment guarantee on 53.9 billion won ($48.4 million) collateral loans to KT ENS suppliers, according to financial community sources on Thursday.

Korea Investment & Securities and Shinhan Investment paid Hana Bank 37.1 billion won and 16.8 billion won, respectively, the following day after the ruling that set a precedent that the liability in losses from fake securities lie with the guarantee issuer or brokerage house and not the bank.

The legal battle dates back to late May 2014, when Hana Bank was involved in a fraudulent loan scheme worth more than 160 billion won provided to suppliers of KT ENS, a subsidiary of KT Corp.

Hana Bank demanded the payment of 40 billion won for asset-backed liabilities from the two securities companies as they promised to guarantee the payment.

Disputes began when the borrowers’ trade receivables that later turned out to be false. A high-ranking KT ENS official conspired with the company’s suppliers to manipulate tax invoices and issue false trade receivables on which the suppliers borrowed money from Hana Bank.

The two securities companies argued since there didn’t exist trade receivables from the get-go, they could not be responsible for their payment, and blamed the bank for neglecting to check whether the collateral was genuine or not.

A lower court ruled in favor of the two securities companies last September, saying the bank should have thoroughly checked the integrity of trade receivables as collateral. But the appellate court ruled the guarantors’ responsibility for payment guarantee still exists even though trade receivables are not present.

The two securities companies plan to appeal against the decision in the Supreme Court.

By Chung Ji-sung

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