Supreme Court hands down maximum prison term for 'jeonse' fraudster

A 50-year-old woman was sentenced to 15 years in prison for orchestrating a massive real estate scam that defrauded 229 tenants out of 18 billion won ($13 million) in deposits entrusted to her under the "jeonse" lump-sum lease system.

The Supreme Court’s First Division upheld a lower court’s ruling on Wednesday, confirming the 15-year prison sentence for Choi, who was convicted of fraud and other charges. This marks the Supreme Court's first definitive ruling in a large-scale jeonse fraud case since the issue emerged as a national concern in 2022, according to The Busan Jeonse Fraud Victims’ Advocacy Group.

Between 2020 and 2022, Choi employed a "gap investment" strategy to purchase nine properties, including small studio apartments often called "officetels," in Suyeong-gu District, Busan, financed by lump-sum jeonse deposits from other tenants.

Jeonse, a unique Korean lease system, requires tenants to pay 60 to 70 percent of a property’s value upfront as a deposit, often their life savings, which is returned at the end of the lease. A "gap investment" occurs when an investor buys a property with minimal upfront capital by using a tenant's jeonse deposit to cover most of the purchase price.

Choi failed to return the deposits to the tenants, citing rising interest rates and changes in real estate policies as the reasons for her inability to fulfill her obligations.

The court rejected Choi’s defense, stating that landlords must account for economic uncertainties when taking on rental commitments. “The primary responsibility lies with the defendant, who engaged in rental businesses far beyond her financial capacity,” the court ruled, imposing a sentence harsher than the prosecution’s request of 13 years.

The 15-year sentence exceeds the statutory maximum for fraud, which is 10 years, as the court applied additional sentencing enhancements for concurrent offenses, where multiple crimes are considered together.

The fraud victims' group hailed the Supreme Court’s ruling, saying, “This case will serve as a critical precedent for similar cases nationwide."