Lotte Rental to Reflect Losses Related to Gallery K Damage Amounts

Lotte Rental Involved in Installment Sales of Gallery K Artworks
Victims File Lawsuit Alleging "Conspiracy to Commit Fraud and Aiding and Abetting"

It has been confirmed that Lotte Rental, a partner company of Gallery K, which carried out a Ponzi scheme worth around 200 billion KRW, directly purchased their artworks and then sold them to buyers. Currently, the victims of Gallery K have filed a lawsuit against Lotte Rental for conspiracy to commit fraud and aiding and abetting.

According to the financial investment industry on the 16th, the recent victims of Gallery K have filed a lawsuit against Kim Jeong-pil, the CEO of Gallery K, related parties, and Lotte Rental for fraud and violation of the Act on the Regulation of Conducting Fund-Raising Business Without Permission.

Established in 2017, Gallery K sold artworks to 'art-tech (art investment)' investors, promising an annual return of 7-9% by lending the artworks to hospitals or companies and collecting rental fees.

For investors who found it difficult to purchase expensive artworks outright, installment products provided by companies such as Lotte Rental were introduced. Most of the victims who submitted the lawsuit claim that they purchased artworks through long-term installments via Lotte Rental.

However, Gallery K eventually came under investigation on suspicion of a 'Ponzi scheme,' paying returns to earlier investors with funds from later investors, and CEO Kim fled overseas.

According to the complaint, the victims stated, "Lotte Rental, a large corporation, is a group of experts in finance and product transactions, so it is unreasonable to believe that they unilaterally trusted Gallery K without understanding the artwork pricing system or the meaning of the art association certification." They further claimed, "Ultimately, Lotte Rental entered into a business agreement with Gallery K in a situation where they could have anticipated the Ponzi scheme structure."

In response, Lotte Rental stated, "Lotte Rental only entered into direct installment contracts with artwork buyers under the Installment Transactions Act and did not provide installment financing to Gallery K."

However, Lotte Rental added, "Gallery K posted the artworks and prices to be sold on the 'Myomi' site, and when a prospective buyer appeared, Lotte Rental purchased the artwork from Gallery K and, as the owner of the artwork, entered into a long-term installment purchase contract with the buyer."

This suggests the possibility that investors trusted Lotte Rental’s credit, believing they directly owned the artworks.

Meanwhile, as a relief measure for victims, Lotte Rental has accepted a plan to waive the remaining installment payments upon the return of the artworks. However, depending on the progress of the investigation and the scale of the damage, there is a possibility of additional compensation payments. In fact, during the 2020 'Optimus Fund fraud case,' NH Investment & Securities, the fund seller, first paid investors the full principal amount of 278 billion KRW.

Furthermore, as lawsuits related to Gallery K continue, Lotte Rental’s estimated contingent liabilities are also expected to increase. As of the end of the third quarter last year, the total amount of lawsuits against Lotte Rental as a defendant was 67.1 billion KRW. This does not include amounts related to the Gallery K lawsuits. It is expected that estimates of damages and compensation will be reflected in future business reports.

A Lotte Rental official stated, "There was a total loan of 16.8 billion KRW from 2019 to early 2023, and the current balance is 3.2 billion KRW. We understand that the Gallery K case is still under investigation, and we will prepare a response plan depending on the results."