New Rental Scandal Involves 10-Year Lease and 10 Billion Won in Deposits

Sovereign State, a newly established company with only 10 million won in capital, was selected as a long-term tenant for a 10-year lease at the Korea Construction Technicians Association's annex in Samsung-dong, Gangnam, Seoul, just 57 days after its establishment in April 2014. Following this contract, Sovereign's representative, Choi, allegedly misappropriated around 10 billion won in security deposits from tenants before being indicted on fraud charges. Despite the significant losses incurred, the association has not clearly explained the initial leasing process that led to the incident.

According to an investigation by the Aju Economy's investigative reporting team on August 5, tenants have requested the court to order the submission of documents related to the association's tenant selection process, including announcements, evaluation criteria, and all board meeting minutes, during the civil lawsuit concerning the subleasing fraud. However, the court rejected this request, leaving the key link to uncovering potential collusion—the selection process—unaddressed in the trial.

The two parties have conflicting claims regarding the rejection. The tenants argue that the association claimed, "There was no evaluation process, and related documents or minutes do not exist," effectively blocking proof of existence. In contrast, an association official stated, "I understand it was dismissed on the grounds that it was unrelated to this subleasing dispute."
 

The issue is that if the association indeed claimed 'absence of related documents' in court, it contradicts its own regulations. According to Article 39, Clause 6 of the association's bylaws, matters concerning the acquisition, disposal, and leasing of significant assets must be approved by the board. Additionally, Articles 43 and 72 mandate that board meeting minutes be recorded and maintained. If no related documents or minutes exist, it raises serious concerns about whether the association bypassed the necessary board approval process or neglected its obligation to manage meeting records.

In fact, other service contracts and management announcements from the same period are still available on the government procurement site and the association's website. However, the announcement related to the rental fraud has not been found.

An association official told the investigative team, "I understand that Sovereign was selected through a competitive bidding process." He added, "The personnel in charge have changed, and since it was a long time ago, verification is needed," while avoiding specific answers. He also mentioned, "It is possible that documents were discarded after the retention period expired," but did not provide any evidence to support the claim of a competitive bidding process.

This raises further suspicions of favoritism in awarding a 10-year lease to a newly established company just two months after its formation. This situation is reminiscent of the 'Whimoon High Foundation case,' where the foundation pre-selected a company, established a corporation, and then signed a contract, leading to revelations of collusion and deposit kickbacks between the chairman and the company representative during subsequent trials.

The circumstances surrounding the contract signing also raise questions. Kim Jeong-jung, the association's president, who was elected in 2013, promoted the construction of the annex as a key project during his tenure. He was later reported to the prosecution for alleged improper involvement in personnel and profit-making activities, as well as for conflicts of interest related to the annex construction. Although the case was dismissed due to insufficient evidence, the accusations continued.
 

The Ministry of Land, Infrastructure and Transport, the supervisory body, has also raised concerns about the association's direct contracting practices. In a comprehensive audit in 2016, the ministry criticized the association for entering into a direct contract despite receiving proposals from two companies for the building lease in Gangnam in 2014. The association was found to have confirmed leasing intentions only with a specific company and failed to conduct a competitive bidding process, resulting in a 'caution' notice. In a 2021 audit, it was noted that the association proceeded with direct contracts without considering general competitive bidding, relying solely on board approval. Therefore, if there are no public bidding records for the annex lease, it is likely that it was handled as an opaque direct contract.

Meanwhile, when the investigative team began its inquiries, the association stated, "We will meet directly to explain the materials and share our position," but did not provide any meaningful documents and repeatedly stated, "It is difficult to provide detailed answers as a civil lawsuit is ongoing." They emphasized that the association also suffered significant losses due to Sovereign's fraud, positioning themselves as victims in the situation.