"You Bought a House With My Deposit?" 400 Homes Bought in a No-Capital Gap Investment Scam [Fraudsters]

"" [The Financial News]"The jeonse deposit is 139 million won, and the lease term runs from Jan. 31, 2019, to Jan. 31, 2021."Tenant A signed a lease at a real estate agency in December 2018. The arrangement was as follows: B, the former owner and seller, would sign a lease with A, and the sale price for the home would be paid with the jeonse deposit A provided. C, a rental housing operator, would then own the villa after returning deposits to existing tenants. A transferred a total jeonse deposit of 139 million won to C.
It later turned out that C had neither the intent nor the ability to return the deposit to A. C was a rental operator who bought newly built villas through a so-called 'simultaneous transaction' method, in which no equity was used at all. Under this scheme, the seller's lease-deposit repayment obligation was taken over, or a new lease was signed before or after the sale contract so that the purchase price could be paid with lease deposits. C planned to keep the villas by using deposits from new tenants to return deposits to earlier tenants when each lease expired.
The problem did not end there. Since April 2017, C had aggressively bought about 400 newly built villas, with lease deposits totaling about 100 billion won. If the leases matured, hundreds of billions of won in deposit repayments were expected. The villas C purchased could not be sold for a certain period under the Special Act on Private Rental Housing, so they could not be liquidated either. Without any concrete business management plan, C merely expected rental prices for villas to keep rising and planned to use deposits from new tenants to cover earlier deposits in a so-called 'rolling over' scheme.
During the trial, C argued that it could not be concluded that there was no intent or ability to return the deposits to the victims, and claimed there was no fraudulent act or intent to deceive. The court rejected that argument. It cited several factors: C had bought, or planned to buy, hundreds of homes through the so-called 'no-capital gap investment' method; jeonse prices tend to fluctuate broadly with overall real estate market conditions rather than moving differently for each individual home, meaning the more homes acquired through no-capital gap investment, the greater the risk rather than the diversification of it; government regulations, including tighter comprehensive real estate taxes, were already in effect at the time of the contracts and C was aware of them; and yet C appeared to have had no plan at all to deal with a drop in property prices.
According to the legal community on the 19th, the Seoul Northern District Court's Criminal Division 14, Single Judge (Judge Kang Kyung-mook) sentenced C, 53, who was indicted on fraud charges, to eight months in prison on Jan. 13.
The court said in explaining the sentence that it took into account "the circumstances surrounding the crime and the fact that the victims had not forgiven the defendant."
jyseo@fnnews.com Seo Ji-yoon Reporter