Received Today by Seoul Metropolitan Police Agency's Metropolitan Investigation Unit
Gallery K, CEO, and Director Sued
Confirmed 18 Victims, Estimated Damage Over 1 Billion KRW
As so-called 'art-tech' fraud cases, where people invest in artworks to gain profits, are on the rise, the law firm Daeryun (Representative Attorney Kim Guk-il), which is handling related class-action lawsuits, has filed a complaint against GalleryK, the largest art-tech company in South Korea.
On the 2nd, Daeryun announced that it submitted a complaint alleging fraud against GalleryK Co., Ltd., its CEO, and the head of headquarters to the Financial Crime Investigation Unit of the Metropolitan Investigation Division at the Seoul Metropolitan Police Agency.
(From left) Lawyers Jiminhee, Kim Myungseok, and Bang Intae of Daeryun Law Firm. Photo by Legal News
According to Daeryun, the accused parties entered into a 'consignment rental contract' with investors who purchased artworks through GalleryK, promising to pay a consignment rental fee for three years and to resell the artwork at the original purchase price upon request after three years, paying approximately 7-9% of the purchase price monthly as usage fees.
They emphasized that if the artwork was not sold within a month, GalleryK would directly purchase it to guarantee the principal, thereby enticing investors. However, contrary to the initial promises, many victims have been unable to recover their investments, Daeryun reported.
Victim A, who purchased a work by an artist for 60 million KRW in 2021 and entered into a rental contract, recently received a notice from GalleryK stating that due to the company's financial difficulties, they could no longer pay rental fees and that resale was also impossible. Another victim, B, who paid 52 million KRW for two artworks, received a similar notice, Daeryun stated.
They inquired with GalleryK about the storage location of the artworks they purchased but reportedly received no response.
Daeryun suspects that GalleryK paid only a portion of the artwork price to the artists and used the remaining funds to pay consignment fees or diverted them as separate investment funds.
So far, 18 victims have expressed their intention to file complaints with Daeryun, with estimated damages exceeding 1 billion KRW, according to the firm. Daeryun has formed a 'GalleryK Fraud Complaint Task Force' to focus personnel on accurately assessing the scale and extent of the damage.
Attorney Kim Myung-seok of Daeryun said, "GalleryK appears to have operated the company using a so-called Ponzi scheme, paying existing investors with purchase funds received from subsequent investors without establishing a stable profit structure," adding, "since they promised to pay investors the full amount of their investment or even more and received money accordingly, charges for violating the Act on the Regulation of Similar Financial Transactions may also apply."
He continued, "As additional victims continue to request complaints, a second complaint filing is inevitable soon," emphasizing, "Given the large scale of the damage, investigative agencies must promptly begin investigations to prove the full extent of the crime."
On the same day, Daeryun issued a separate statement regarding the complaint, stating, "This case shows a typical Ponzi scheme pattern," and "The actions of the accused clearly constitute 'fraud crimes.'"
Daeryun explained, "Despite having no structure to generate stable profits through artwork rentals, they deceived new investors by recruiting them under false pretenses and used the investment funds received from new investors to pay commissions to existing investors or royalties to artists," adding, "The accused are presumed to have operated this so-called Ponzi scheme business while investing the remaining funds in real estate or other areas, resulting in losses."
Furthermore, Daeryun pointed out, "There are also issues related to similar financial transactions," stating, "Article 3 of the Act on the Regulation of Similar Financial Transactions defines 'acts of receiving investment funds with a promise to pay the full amount or more in the future' as similar financial transactions. Moreover, to conduct similar financial transactions, one must obtain permission or go through registration or reporting procedures according to laws."
They added, "However, the accused conducted similar financial transactions by receiving unspecified amounts from numerous victims under the name of artwork purchase payments without following these procedures," noting, "Although the identified damage amount is about 1 billion KRW, related damages continue to be reported, so the scale of damage is expected to increase."
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