Seoul City Issues Warning on Illegal Financial MLM Scams
Kkalse Method Used to Rent Offices and Lure Investors with Promises of High Returns
Verify Proper Registration and Office Rental Type to Avoid Fraud
The Seoul Metropolitan Government has issued a warning as illegal financial multi-level marketing (MLM) activities, which lure investors with promises of high returns by setting up seemingly legitimate short-term rental offices in the Teheran-ro area of Gangnam, have become increasingly rampant.
On May 29, the Seoul Metropolitan Government's Civil Affairs Police Bureau announced that it had issued a "Financial Multi-Level Marketing Scam Alert" and launched an investigation into such activities using the so-called "Kkalse" method. "Kkalse" is a slang term in real estate referring to sublease contracts for short-term rentals. Illegal financial MLM operators are known to frequently use this tactic to disguise themselves as high-profit businesses by running offices in business districts.
Recently, there has been a rise in organized fraud crimes that use "corporations" as a front. According to the National Police Agency, there were 20,280 fraud cases in Seoul in the first quarter of this year, an 8.4% increase compared to the same period last year. Among these, organized frauds using corporations nearly doubled from 23 to 43 cases during the same period.
In particular, the Seoul Metropolitan Government reported a growing number of complaints about illegal financial MLM scams in the Teheran-ro area of Gangnam, where short-term rental offices are set up using the "Kkalse" method to entice retirees, homemakers, and the elderly to invest. These operators pay allowances for a certain period, then shut down the office and disappear. They often give investors titles such as "center manager" or "branch manager" and promise referral bonuses for recruiting more people. However, actual product sales are either merely nominal or do not exist at all. Many of these operations use the illegal MLM structure of referral bonuses characteristic of pyramid schemes.
The city stressed the importance of verifying whether a company is properly registered in order to prevent damage. It is necessary to check registration status with the Fair Trade Commission, Korea Special Sales Association, and Direct Selling Association, as well as to review any history of violations, the office rental period, and the type of contract. Structures centered on referral or sponsorship bonuses may be a warning sign of illegal MLM schemes and should be approached with caution.
Furthermore, due to the nature of these crimes, it is difficult to detect criminal activity without citizen reports or tips. The city explained that it is important for people to actively report if they are solicited by or have suffered damage from suspected illegal MLM operators. If decisive evidence is provided when reporting or tipping off illegal MLM activities, a reward of up to 200 million won will be given.
Kang Heeun, acting director of the Seoul Metropolitan Government's Civil Affairs Police Bureau, stated, "If there is even the slightest suspicion regarding investment solicitations or business proposals, please report or provide information to the Civil Affairs Police Bureau of the Seoul Metropolitan Government to help prevent further damage."
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