A financial incident estimated at 200 billion won, suspected to be a Ponzi scheme (multi-level financial fraud), has occurred at a lending company in Seoul. Although illegal activities have continued for seven years at a formally registered financial institution, the financial authorities were unable to intervene due to a lack of supervision and inspection authority. The Seoul city government, which has supervisory authority, failed to recognize the illegal operations, allowing the scale of the incident to grow. The city has only recently become aware of the situation and is currently remaining uninvolved.
According to a comprehensive report by Chosun Biz on the 26th, the representative of lending company P, based in Gangnam, Seoul, was engaged in an unlicensed investment business since 2017 and disappeared around mid-month. The company had attracted funds by promising to return investments with annual returns between 10% and 30% for short-term sales bonds from small and medium-sized enterprises with maturities of six months or less. P is a legally registered private lending company in Gangnam. While registered lending companies are only allowed to engage in lending activities, P continued to promote bond investments through its company website and face-to-face sales.
Until last month, P's investment business appeared to be running smoothly. It is reported that there have been no issues with principal repayments and interest payments for seven years. However, starting from mid-last month, repayments of some investments began to be delayed. As of this month, the amount of unpaid principal has increased even further. P claimed it was merely a delay in repayments, but it has recently closed its company website, and the representative has evaded contact from investors. To date, over 800 investors have claimed to be victims. According to an organization involved in P's operations, the total amount of unpaid investments is nearing 200 billion won.
This financial incident occurred amid a management gap between the Seoul city government and financial authorities. Lending companies are classified into two types: those registered with the Financial Services Commission and those registered with local governments. P falls into the latter category. According to current law, the management and oversight authority over local government-registered lending companies is held by the local government. Financial authorities lack the authority to supervise these local government-registered lending companies. This allowed P to evade intervention by the Financial Supervisory Service while conducting operations outside the scope of lending for the past seven years.
An official from the Financial Supervisory Service said, 'The Financial Supervisory Service cannot oversee or inspect local government-registered lending companies,' adding, 'We are aware of the P case but practically have no means for follow-up actions such as on-site inspections.'
The Seoul city government, responsible for oversight, only became aware of P's illegal fundraising activities when the Chosun Biz investigation began. Previously, the city had inspected nearly 700 lending companies this year, focusing mainly on larger firms and thereby excluding the private firm P from the inspection targets. They missed the last opportunity to catch signs of irregularities. Moreover, two city departments responsible for lending enterprises are shirking responsibility by blaming each other, remaining inactive.
A Seoul city official said, 'The city can only impose administrative sanctions for violations of the lending business law' and noted, 'We cannot take separate actions regarding illegal acts that fall under criminal law related to similar fundraising activities.' They added, 'Currently, there are no plans for further measures such as referring the case for investigation at the city level,' but said, 'However, due to a high number of complaints, we plan to visit the P office within this week.'
Currently, nearly 80 investors are reported to have filed complaints against the representative with the Gangnam Police Station in Seoul. The investors allege that P engaged in a Ponzi scheme by using new investors' funds to pay off existing investors, claiming violations of the Specific Economic Crimes Weighted Penalty Act concerning fraud and similar fundraising activities.
Meanwhile, Chosun Biz has made several attempts to contact the representative to hear their position, but the representative has not responded and has turned off their phone.