(Bloomberg) -- A South Korean hedge fund has halted redemptions by some investors amid accusations by a local brokerage of fraudulently promising low-risk investment.

Seoul-based Optimus Asset Management, a 522 billion won ($432 million) hedge fund specializing in alternative assets, has frozen withdrawals totaling at least $41 million from some of its funds since last Thursday, said two people familiar with the matter, who asked not to be identified as the information is private.. The suspension of redemptions had been reported earlier by local media including Korea Economic Daily.

In a letter to clients, NH Investment & Securities Co., the biggest distributor of the fund, accused Optimus staff members of fraud. NH said that while the fund is supposed to be investing 95% of its assets in receivables of state-owned enterprises, it has put money into private placements of bonds by non-listed firms and forged a contract for the transfer of the receivables.

“We sincerely apologize for selling the products in question,” Jeong Young-chae, chief executive officer of NH Investment, said in the letter. “It may take some time for us to conduct due diligence to find out what exactly the fund invested in and what the value is. We will make every effort to recover our clients’ assets.”

The Financial Supervisory Service is probing the halt in client withdrawals and prosecutors are looking into the accusations by NH, according to one of the people familiar with the matter. Optimus didn’t respond to three phone calls and two emails from Bloomberg today during office hours.

The suspension of redemptions sparks new concern over the nation’s $24.8 billion hedge fund industry after the largest player Lime Asset Management Co. halted redemptions from some of its funds in October as it couldn’t return cash as fast as clients wanted. Lime had invested in illiquid assets such as convertible bonds issued by small companies. The industry has seen net outflows of 4.5 trillion won this year as of end-May, according to NH data.

At least 1,000 retail investors were estimated to have invested in the funds run by Optimus, lured by promises of a stable return of around 3% and maturity of less than a year on average, said a person with knowledge of the matter.

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