450 million won raised on promise to “expand liquor accounts” ... CEO who spent it on club acquisition gets 2 years in prison [Fraudsters]

[Financial News] On November 23, 2023, at a cafe in Seoul’s Gangnam District, A, the CEO of a liquor distribution company, asked acquaintances to lend money to expand the business. The rationale was that securing high-quality accounts for small liquor companies struggling in the wake of COVID-19 would generate stable profits.
A cited the sales-promotion allowance system unique to the liquor industry. The explanation was that even if support funds were paid upfront to secure accounts, they could later be recouped through the settlement of liquor bills. A also claimed the money could be recovered through sales-promotion allowances from other liquor companies even if a business relationship ended.
A promised to repay the principal and pay monthly interest of 1.5–1.6%. Trusting this promise, the victims handed A a total of 450 million won that day. One transferred 200 million won to the company’s account, while another victim’s side delivered 250 million won in checks and other forms of payment.
But the money was intended for a different purpose. A borrowed the money under the pretext of expanding liquor accounts but actually planned to use it to pay overdue liquor bills and acquire a club in Seoul’s Gangnam District.
At the time, A’s company was already in severe financial difficulty. Its debts to financial institutions alone totaled about 11.1 billion won, and on the day it received a 200 million won transfer from a victim, the company’s account had a negative balance of about 117 million won.
In December of the same year, A acquired a club in Gangnam for 1.5 billion won in the name of A’s son-in-law. The purchase price included money borrowed from the victims. But after opening on December 26, the club closed at a loss on January 10 of the following year, about 15 days later.
The interest payments promised to the victims also stopped after just two or three months. A’s company filed for corporate rehabilitation in April 2024, and A filed for personal rehabilitation in May of the same year. Testimony also emerged at trial that A admitted to acquiring the club when confronted by the victims.
According to legal circles on the 31st, Judge Lee Ji-min of Seoul Eastern District Court sentenced A, who was indicted on fraud charges, to two years in prison on September 29.
During the trial, A argued that the club was also a new outlet for liquor sales, so the funds had been used for their original purpose. A also contended that the company had been capable of repaying the loan, with revenue of about 11.4 billion won when the money was borrowed, and that its financial situation later worsened because of unforeseen business difficulties.
The court rejected this argument. The loan agreements with the victims specified that the funds were for “operating expenses necessary to expand liquor sales outlets.” The court found credible the victims’ statements that they would not have lent the money had they known it was intended to acquire a club.
The court also found that, given the company’s financial condition at the time, A knew it would be difficult to repay the principal by the promised deadline. It ruled that concealing the actual purpose of the funds also constituted deception under the fraud statute.
The court noted that “the amount defrauded was substantial, and the victims are seeking severe punishment because they have received no compensation at all.” However, taking into account, among other factors, that a judgment in another case had already become final, it sentenced A to two years in prison.
[email protected] Lee Dong-hyuk Reporter