Prosecutors get arrest warrant for key figure in land scandal

Reporters flock around the attorney of Yoo Dong-gyu, a key suspect in a land development scandal in Seongnam, Gyeonggi, who was questioned at the Seoul Central District Court in Seocho District, southern Seoul, Sunday. [NEWS1]

Prosecutors on Sunday obtained an arrest warrant for a key figure in the land development scandal in Seongnam, south of Seoul, on suspicions that he caused damages to the city by designing a profit distribution scheme that favored certain private companies that invested in a project in Daejang-dong, Seongnam.

The Seoul Central District Prosecutors' Office, led by Prosecutor Kim Tae-hoon, requested a formal arrest warrant for Yoo Dong-gyu, a former acting president of the Seongnam Development Corporation, at the Seoul Central District Court on Saturday, accusing him of breach of trust and bribery under the Special Economic Crimes Act.

The Seoul Central District Court questioned Yoo on Sunday afternoon and decided to grant prosecutors an warrant in Yoo’s case.

Prosecutors took Yoo into custody from a hospital emergency room on Friday morning after obtaining a court-issued warrant to detain him for questioning. Yoo underwent intensive questioning for about 12 hours until 9:40 p.m. and stayed overnight at the Seoul Detention Center before being questions again the next day starting at 10 a.m.

Yoo is accused of designing the shareholder composition and profit distribution method of the mixed public-private Seongnam Park consortium, the developer of the Daejang-dong project, to favor Hwacheon Daeyu, a small private asset management company and its affiliates Cheonhwa Dongin No. 4 and No. 5.

Hwacheon Daeyu joined the Daejang-dong development project — which cost an estimated 1.15-trillion-won ($981 million) — to develop 968,890 square meters (239 acres) in Daejang-dong in Seongnam, Gyeonggi, as residential real estate. Since 2019, Hwacheon Daeyu allegedly raked in a profit of 57.7 billion won on an investment of 49.95 million won — a mere 1 percent stake in the project.

However, the city-owned Seongnam Development Corporation reportedly only received 183 billion won in profits over the past three years, despite holding a 50 percent stake in the project.

While questioning witnesses from the Seongnam Development Corporation, prosecutors learned that a clause in the investment contract, which would have required private sector investors to return excess profits arising from the development, was deleted under orders from Yoo, and questioned him regarding this directive.

Speaking to the JoongAng Ilbo on the condition of anonymity, an official from the Seongnam Development Corporation said, “If the clause concerning the cap [on excess profits] had been maintained, the Daejang-dong development might not have become such an issue.” He added that Yoo removed those who opposed the deletion of the clause from the project.

Prosecutors also questioned Seongnam Development Corporation employees about gifts of cash or valuables from Hwacheon Daeyu in exchange for setting up a profit distribution scheme that would be favorable to the company.

Evidence of such bribes first came to light after Jeong Young-hak, the owner of Cheonhwa Dongin No. 5, submitted 19 recordings of conversations between several private stakeholders in the Daejang-dong project, including Hwacheon Daeyu’s owner Kim Man-bae and Yoo, to the state prosecution service.

Yoo also faces allegations that he was promised a cut of the profits amounting to 70 billion won through his ownership of Cheonhwa Dongin No. 1, another Hwacheon Daeyu affiliate, under a borrowed identity. However, Yoo's lawyer denied that allegation as “groundless.”

“This allegation is a misrepresentation of funds that Yoo borrowed to set up a natural fertilizer business with Jeong after Jeong quit from his post as the president of the Gyeonggi Tourism Organization and joined the Seongnam Development Corporation,” a lawyer for Yoo claimed.

However, prosecutors suspect that the funds that Yoo claims to have been loaned were in fact a payment given to him in return for granting preferential treatment to Hwacheon Daeyu in the Daejang-dong project’s profit distribution.

Bribes worth more than 100 million won carry a minimum prison sentence of 10 years under the Special Economic Crimes Act.

The scandal over the nature of Hwacheon Daeyu’s profits from the Daejang-dong development project have engulfed politicians across the political spectrum, with the ruling Democratic Party’s presidential frontrunner and Gyeonggi Governor Lee Jae-myung facing scrutiny for his role in the project and his relationship with Kim, a former journalist who interviewed him in 2014.

Prosecutors are also investigating allegations of bribery against former main opposition People Power Party (PPP) lawmaker Kwak Sang-do, whose 31-year-old son received a colossal severance payment of 5 billion won from Hwacheon Daeyu after working at the company for seven years as a mid-level employee.

Kwak resigned from the PPP on Sept. 26 and the National Assembly on Saturday, while his son’s home was raided by prosecutors on Saturday.

BYMICHAELLEE[lee.junhyuk@joongang.co.kr]