Gang Involved in Jeonse Fraud Caught After Buying 400 Villas and Officetels with 'No-Capital Gap Investment,' Pocketing 11 Billion Won in Deposits

A gang that purchased hundreds of houses using a 'no-capital gap investment' method and committed a lease fraud worth over 11 billion KRW has been arrested by the police.

Jeonse fraud crime structure. [Image source=Seoul Metropolitan Police Agency]

The Seoul Metropolitan Police Agency's Metropolitan Investigation Unit Mobile Squad announced on the 2nd that 119 people were booked on charges including organized crime activities and fraud, and six of them were detained.

According to the police, from May 2020 to August 2022, the suspects purchased 428 villas and officetels in the Seoul metropolitan area and defrauded 75 tenants of lease deposits totaling 11 billion KRW.

Police investigations revealed that the ringleader, Mr. A, planned the crime after noting that in the Seoul metropolitan area, the lease prices of villas and officetels were higher than their sale prices, creating a reverse lease situation where no-capital gap investment transactions were rampant.

Mr. A gathered acquaintances to form a lease fraud organization, assigning managers to oversee name lenders and properties. Employees were tasked with advertising properties and concluding lease contracts. It was later confirmed that they colluded with real estate agents to purchase houses using only lease deposits without any capital.

The gang inflated the lease deposits above the actual sale prices to conclude contracts, pocketing the remaining difference as rebates. These rebates were distributed among brokers, name lenders, consultants, and some were used for acquisition taxes and other costs related to ownership transfer. Such facts were not disclosed to the tenants during the lease contract process.

They also continuously obtained illegal profits by having tenants receive subrogation payments from the Housing and Urban Guarantee Corporation (HUG) for vacant buildings and then converting them into monthly rental properties.

The police confiscated 75 houses owned by the organization and seized 430 million KRW in rebate profits distributed to five managers.

A police official stated, "We plan to continue investigations into real estate-related crimes such as lease fraud in cooperation with related agencies including the Ministry of Land, Infrastructure and Transport."