Gap Investment with No Capital to Commit Rent Scams
Forging Lease Contracts for Fraudulent Loans, View of Busan Police Agency ⓒ News1, Reporter Yoon Il-ji,
A 70-year-old former senior public official, who is suspected of committing large-scale charter fraud and obtaining fraudulent loans, has been handed over to the prosecution in custody.
The Anti-Corruption and Economic Crime Investigation Unit of the Busan Police Agency announced on the 20th that it had detained and sent former senior public official A (in his 70s) to the prosecution on the 17th under charges including violations of specific economic crime aggravated punishment laws.
A is accused of purchasing nine office buildings with 73 units in various districts of Busan, including Geumjeong, Dongnae, Yeonje, Busanjin, Sasang, and Buk, between March 2019 and May 2023, and misappropriating charter deposits worth about 6.2 billion won from 73 victims.
He is also suspected of forging lease contracts for two buildings with 60 units around November 2021 to obtain fraudulent loans worth approximately 4.78 billion won from a financial institution in Busan.
According to the police, A operated his rental business using the “gap investment” method, buying buildings with little of his own capital by utilizing tenants’ deposits and real estate secured loans, thereby acquiring “empty buildings” with deposit amounts higher than the actual value. He used a “Ponzi scheme” style operation, securing new tenants to pay off earlier ones.
While entering into lease contracts with tenants, he flaunted his wealth and background as a former senior official, reassuring tenants by saying, “do not worry about getting your deposit back.”
Reports against A were initially filed around June 2023 from various places in Busan, prompting the Anti-Corruption and Economic Crime Investigation Unit to consolidate and begin an investigation.
During the investigation, A’s fraudulent loans were uncovered. Due to government regulations on charter loans and the social spotlight on charter fraud, his rental business began facing difficulties, with increasing cases of unpaid deposits.
Attempting to resolve the issues at that time, he sought a loan from the bank using an officetel as collateral, but his loan application was denied because his debts exceeded the value of the already-owned officetel.
Consequently, he forged a lease contract for an officetel, falsely reducing its 126 million won deposit to a 20 million won deposit with a 600,000 won monthly rent, to acquire a fraudulent loan.
A police official stated, “When establishing a lease contract, ensure to verify the building’s lien, rental deposit status, and utilize the relevant systems. By requiring landlords to mandatorily enroll in deposit insurance in accordance with relevant laws, practical preventive measures can be implemented. We will swiftly and thoroughly investigate further reports of damage related to A.”