Accountant Jeong Young-hak, known as the mastermind behind the development project in Daejang-dong, Seongnam-si, Gyeonggi, illegally raised a significant portion of the 5 billion won capital when establishing the Daejang project financing vehicle (PFV) in 2009.

According to the coverage by the Kyunghyang Shinmun on November 4, when the Suwon District Prosecutors’ Office investigated lobby allegations in connection with the Daejang-dong project and politicians and public officials in June 2015, they obtained a statement from Lee Kang-gil, CEO of C7, claiming that Jeong illegally raised the startup capital for the Daejang PFV.

The prosecutor’s investigation at the time confirmed that private developers including Lee, Jeong, and their partner Gim, had established the Daejang PFV for the Daejang-dong development project in 2009. According to current law, startup capital of 5 billion won is required to establish a project financing vehicle. But these men did not have the cash to make the payment at the time.

So Jeong, who oversaw accounting matters, suggested that they use the money that C7 had borrowed for development costs from the Busan Savings Bank as the startup capital of Daejang PFV. That same year in November, C7 took out a primary loan of 98 billion won including 81.4 billion won for a down payment on land purchase, 15 billion won for financial costs, and 1.6 billion won for other purposes from the Busan Savings Bank. According to the loan contract, the money could only be used for the purposes stated in the contract. But Jeong fabricated a receipt to make it look like the company purchased land and received 4.75 billion won from the bank and used this money as the startup capital for the Daejang PFV. The private developers didn’t spend a dime of their own money and simply obtained their share in the Daejang PFV with money from the bank. This comes under fraudulent payment for shares, which can be sentenced to up to five years in prison or a fine of up to 15 million won. It was confirmed that Jeong had secured 6.5% of his shares of Daejang PFV with this money.

In his statement at the Prosecutors’ Office, Lee said, “When we were discussing how to raise the startup capital, Jeong explained to the shareholders that we could borrow the money short-term and use it temporarily.” He also said, “Since we needed papers to back our efforts to raise the 5 billion won startup capital, he asked us to collect the receipts from costs incurred at the Daejang-dong site.” He further explained, “Since the startup capital for the PFV was not included in the execution plan we submitted to the creditors, we could not report that the money would be used for the payment. I think that’s why Jeong used an expedient method, using the money borrowed in the form of a short-term loan.”

Reportedly, Jeong also admitted this in a statement given to the prosecutors and said, “We provided the startup capital by lending some of the money from the primary loan to shareholders who wanted to establish the Daejang PFV.”