Alleged deposit fraudsters indicted for organized crime

Social Affairs

Published: 27 Jun. 2023, 15:24

Alleged deposit fraudsters indicted for organized crime

A jeonse fraud victim shed tears during a protest held in front of the president's office in Yongsan, Seoul, in April. [YONHAP]

Eighteen people accused of swindling more than 300 tenants in Incheon out of their long-term rental deposits were handed over to the court on organized crime charges.

This is the first time a case involving deposits, called jeonse, will be tried as organized crime.

If convicted, the indicted suspects could face at least four years in prison and a maximum of death.

According to the Incheon District Prosecutors’ Office on Tuesday, 35 suspects were indicted, including 61-year-old Nam Heon-gi, the so-called "construction king" and alleged mastermind of the scheme, as well as several realtors.

Prosecutors indicted 18 of the 35 suspects, including Nam, for organized crime, because the alleged fraud was systematical. The others were charged with fraud.

The prosecutors also charged Nam with embezzlement.

Nam has been in custody since his arrest in late February.

According to the prosecutor’s office, Nam and his associates are accused of swindling 30.5 billion won ($23.4 million) in jeonse deposits from 372 tenants.

Nam and his associates owned 2,700 residential units, mostly small low-rise apartments in the Michuhol District in Incheon, between March 2021 and July last year.

The prosecutors’ office said the damages inflicted on the tenants have more than doubled since the first indictment in March.

Nam acquired or built the low-rise apartments with the jeonse deposits that the tenants borrowed from financial institutions.

Jeonse refers to a system in which a tenant pays a very large refundable deposit upfront in return for rent-free or reduced-rent occupancy for a fixed period, while also usually forgoing the interest that would accrue on the amount if it had been left in a bank account.

However, when it was time to pay back the tenants' deposits, he failed to do so as the property market has been frozen since last year, rendering it impossible to use incoming tenants’ jeonse to make the payments.

Nam owned several real estate agencies where the employees would attract potential victims with jeonse offers that were far below the market value.

The employees were compensated accordingly for their performance.

Nam is accused of embezzling 11.7 billion won, including 4 billion won from a construction company he owned that was supposed to be used in building a new apartment.

However, the money was used to buy land for a massive development project in Donghae, Gangwon, in January 2018.

Instead, the new apartment was built using jeonse deposits.

Nam was also indicted on charges of forging documents since he allegedly submitted false documents to the court that was reviewing his detention in December.

The jeonse fraud has only grown since first emerging as a controversy last year.

Michulhol District in Incheon wasn’t the only place where tenants were swindled out of their jeonse deposits, with countless cases also reported from Yangcheon District, in southwestern Seoul.

In June, the government — the Land Ministry, National Police Agency and the Supreme Prosecutors’ Office — announced the preliminary results of a nationwide investigation of jeonse fraud, finding 2,995 victims who suffered damages totaling around 459.9 billion won.

More than half the victims were young people in their 20s or 30s.

Most of the tenants face a dire situation. Unable to recoup their mostly borrowed jeonse deposits, not only do they face eviction with their housing units being auctioned off by the financial institutions that own them, but they also face massive debt especially with interest rates rising.

Five victims have died by suicide so far, four of them tenants who lived in apartments in Incheon. Three of the victims in Incheon were in their 20s or 30s, including a former Olympian that was struggling to make ends meet.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]