Gallery K, an art and financial technology company that appointed actor Ha Jung-woo as an advertising model, recorded an annual revenue of 60 billion won and is under police investigation for alleged Ponzi schemes. Gallery K failed to deliver the promised annual revenue of 7-9% and principal guarantee. The representative of Gallery K, Mr. Kim, has gone missing, and the estimated damage ranges from hundreds of millions to as much as 100 billion won.
The business model of Gallery K, which claims to guarantee high revenue, is simple. When investors purchase artworks through Gallery K, the company lends the artwork to corporations or hospitals, generating revenue to be shared with the investors. When an investor notifies the end of the contract, Gallery K re-sells the previously lent artwork to return the investment (principal) to the investor. However, since last year, the return of principal has not occurred, raising suspicions that Gallery K has been running a Ponzi scheme, using new investment funds to pay off existing investors.
Victims have particularly called for strong penalties for the so-called 'art dealers' who recommended and solicited investments in Gallery K, alleging their active involvement in the fraud. This is due to an abnormal commission rate system that pays art dealers up to 15% per contract. It is suggested that while the art dealers recognized that Gallery K's revenue structure was not sustainable, they still recommended investments to earn money. Some art dealers have claimed, "We are also victims," but general victims asserted that most art dealers, being financial planners or insurance agents, could not have been unaware of these issues.
A legal professional noted, "It appears that financial planners acted as recruiters, deceiving investors into investing in Gallery K and embezzling their funds."
Actual commissions received by art dealers who attracted investments in Gallery K far exceed the industry average. According to the sales regulations of Gallery K obtained by ChosunBiz on the 19th, if an art dealer successfully secures a contract for Gallery K's 'Artnomics1', they can receive a commission of 9-15.5% of the investment amount (actual payment) for three years. The product for purchasing artworks, 'Artnomics2', pays a commission of 20-22.5% of the actual payment amount. The commission for notoriously high hedge fund managers is around 2% of the fund's assets. Critics argue that once commissions are paid to sellers, it becomes difficult for investors and Gallery K to share revenue.
The team-based organization of art dealers is structured like a pyramid. As art dealers build their performance, they can be promoted to top art dealer or executive art dealer, allowing them to collect larger commissions. The art manager, who recruits and manages the art dealers, receives a commission of 2.24-2.94% every time a team member secures a contract, even without selling.
Such organized teams have been active across the country, attracting investors. Gallery K created a separate sales organization called Gallery K Partners and operated five business units under it (Seoul, Yeongnam, Honam, Global, and Business Unit 1). Beneath each business unit, there are numerous headquarters, and many teams carry out sales activities.
Art dealers operated as financial planners rather than disclosing their status as art dealers, recommending investments in Gallery K. They approached customers by offering free financial consultations through social media and subsequently suggested the increasingly popular art and financial technology investment methods. This mirrors the business practices of PS Financials, which is currently expected to involve Ponzi scheme damages amounting to billions of won. (This report refers to the article published on Jan. 23, 2025, in <"I believed it was Mirae Asset"… 2 billion PS Financials scam involving affiliated insurance agents>)
Mr. A, who retired from a company where he worked for 12 years, started investing a total of 300 million won in Gallery K in 2020 after encountering advertisements for free financial planning consultations through social media. The financial planner and insurance agent he met there recommended enrolling in a variable universal life insurance policy, but when Mr. A refused, they suggested Gallery K's products. Mr. A stated, "They kept emphasizing principal guarantee, so I immediately heard the explanation for the Artnomics product," and added, "I was told that all of the investment amount would be returned once the contract ended."