Businessman gets 15 years on appeal for W67b jeonse fraud

A businessman who defrauded 349 people of about 67 billion won ($45.7 million) through a zero-capital gap investment scheme has been handed a heavy sentence for the second time.

The Seoul Central District Court's Criminal Appeals Division 9-3, presided over by judges Jeong Hye-won, Choi Bo-won and Hwangbo Seung-hyeok, upheld a 15-year prison sentence against Kim, the head of Company A, who was indicted on charges including organizing a criminal enterprise and fraud, Yonhap reported Thursday.

Two team-level employees indicted alongside Kim received sentences of seven years and four months and seven years, respectively, reduced from 10 years each at the first trial.

Kim and his associates were charged with defrauding 349 people of 69.9 billion won in jeonse deposits between March 2016 and January 2022. The scheme involved purchasing newly built villas below market price while simultaneously signing jeonse contracts at higher prices, using the deposits collected from tenants to cover the purchase costs — a zero-capital gap investment strategy.

Kim denied the charges, arguing that he had run a legitimate rental business and that the venture had simply failed due to falling real estate prices and government policy changes, not any deception of tenants.

The other two defendants also pleaded not guilty, claiming they had not conspired with Kim for any unlawful purpose.

The first-instance court said the so-called "simultaneous transaction" business model Kim employed was structurally destined to collapse into an inability to return deposits the moment the flow of new tenants dried up.

The court also found that Kim's side had withheld material information from tenants at the time of signing jeonse contracts, telling them there was no problem recovering deposits because Kim was a businessman who owned multiple properties.

In practice, Kim refused to return deposits, telling tenants such things as "it's impossible unless a new tenant moves in," "you should pay more and buy the unit yourself," and "get your deposit back through auction."

On that basis, the first-instance court found that Kim had at least conditional intent to defraud tenants of their deposits and convicted him on the charges.

The court also found Company A guilty of organizing and operating a criminal enterprise, ruling that it had been established for the purpose of fraud and was structured to carry out crimes repeatedly.

Kim again sought acquittal at the second trial, arguing that the difficulty in returning deposits arose solely from changed circumstances after the fact, but the court rejected the claim.

The appeals court said the risk of being unable to return deposits once new tenants stopped coming in was a danger already inherent in the business model from the design stage, given the nature of the simultaneous transaction structure. It added that tightened tax regulations on multi-property owners and fluctuations in the real estate market fell within the range of foreseeable risks.

Taking into account the motive and scale of the crimes, the appeals court sentenced Kim to 15 years in prison, matching the first-trial term.

The sentences of the other two defendants were reduced, however, in light of settlements they reached with some victims during the appeals process.