Many South Koreans, under continuing duress from the COVID-19 pandemic, have an additional cause for discomfort these days: a housing development scam unfolding in a satellite city of Seoul where a handful of unknown people made undeserved profits of an astronomical scale. Their adrenaline goes up when they imagine the possible involvement of Lee Jae-myung, the ruling party’s presidential election front-runner, in this affair in his political hometown.
The Daejang-dong project in Seongnam, Gyeonggi Province, is probably the last hazard the 56-year-old governor, a maverick politician who built his career with unconventional wit and appeals to the lowest strata of society, should negotiate before coming to the final race next spring.
Opposition contenders are primarily blaming Lee, who was Seongnam mayor from 2010-2018, for creating the fantastic project producing up to 1 trillion won ($840 million) in dividends bagged by amateur developers. The key figures are a former journalist who assembled investors in the joint official-private project and a longtime aide to Lee who drew up the financing blueprint for Daejang-dong.
Yoo Dong-gyu, appointed by Lee as planning director of Seongnam Development Corp. in 2015, was arrested by the prosecution last weekend on suspicion of aggravated bribery and breach of trust. More arrests are expected, although how wide the probe will be is hard to guess.
Every stage of the project process defied established practices from screening bidders to dividing profits between the city government and private developers. Out of some 600 billion won of profit so far created and another 400 billion won expected to come, 180 billion won went to the city coffers and the rest was divided up by seven companies that had made capital investments totaling 350 million won.
Hwacheon Daeyu, the asset management company established by Kim Man-bae, who the media linked to Lee Jae-myung with suspected lobbying activities for him, has now become the symbol of an enormous windfall in return for meager seed money. The secret of making the unbelievable thousandfold profit was rather simple: Developers took over properties from landowners at low prices under the city government’s expropriation order and they sold apartments at arbitrarily set high prices.
Scouts at the Financial Intelligence Unit detected suspicious transfers of money in large chunks through business and individual accounts in the Seongnam area last spring and reported them to the law enforcement authorities. While they were delaying investigation, a provincial newspaper exposed the “financial mystery,” alerting the entire media world of a possible bombshell to unravel a nexus between the local administration and real estate developers.
Instantly, the name Lee Jae-myung appeared in articles on front pages of newspapers across the country about the Daejang-dong project for his connection with the city where he was catapulted to national politics through his unsuccessful presidential bid in 2017 and successful challenge to the Gyeonggi Province governorship the following year. The main opposition People Power Party is pressing prosecutors to establish close personal ties between Lee and Hwacheon Daeyu Co. owner Kim Man-bae, but doubts their enthusiasm in this direction.
The fact that the HDC firm had a bevy of eminent legal professionals as its “advisers” naturally called for suspicion about the nature of the asset management company, with a founding capital of a mere 50 million won. Among them, Kwon Soon-il, who was a Supreme Court justice until August 2020, draws particular attention as he played the decisive role in exonerating Lee Jae-myung from illegal electioneering charges last year.
In May 2018, during a televised debate among candidates for Gyeonggi Province governor, Lee lied about his family affair, earning him a fine of 3 million won from the lower courts, which was big enough to disqualify him permanently from public service. HDC owner Kim Man-bae, then a court correspondent from a business newspaper, met with then Justice Kwon Soon-il eight times across several months of 2020 while Lee’s appeal was pending in the Supreme Court.
In an all-justice session in July that year, the highest judges were split half and half on Lee until Kwon, who was to speak last as the most senior member, positively expressed “not guilty.” Chief Justice Kim Myung-soo followed the majority position to finalize the verdict that enabled Gov. Lee to keep his office. Kwon retired the next month and was soon hired as an adviser to HDC, a job that gave him 15 million won a month until he quit last month.
Lee Jae-myung actually initiated the Daejang-dong project with a decision to develop the area in a joint official-private venture in 2015 when the central government authorized local autonomous administrations to release lands from “Green Belt” zones when necessary for public purposes. He used to boast of Daejang-dong as one of his proud achievements as Seongnam mayor, but is now trying to distance himself from the project and its main player Yoo Dong-gyu, labeling him just one of his many former subordinates.
Lee claims that Daejang-dong became such a gold mine because of the steep rise in real estate prices in Seoul and its vicinity over the last few years and that Seongnam had sufficient earnings from the project. Yet, he is not free from the responsibility of introducing an unrealistic profit-sharing method that allowed a group of amateur developers assembled by the ex-journalist to get away with tens to hundreds of billions of won.
Through daily media reports, people have now been informed of how the HDC and its sister company Cheonha Dongin made their immense cash harvests and are awaiting law enforcement authorities to find where the flow of money ended up. Some already-known destinations include those well-paid high-profile legal advisers to Hwacheon Daeyu and the son of a former presidential secretary who received 5 billion won in severance pay after six years with the firm. Yoo Dong-gyu is initially charged with receiving 800 million won in bribes.
Eager to know the truth are those landowners who sold their properties to the developers at prices unilaterally set by the city, as well as Daejang-dong apartment buyers who paid their hard-earned money to fill the jackpot. If they are direct victims in a scam involving city authorities and some carpetbaggers, there are millions of frustrated people watching forlornly the rising apartment buildings in Daejang-dong and the lucky developers swimming in the pool of cash.
Prosecutors are investigating, but their probe shall not be complete until they let us know what happened between Lee Jae-myung, Kim Man-bae and Kwon Soon-il last year and between Lee and Yoo earlier.Kim Myong-sik
Kim Myong-sik is a former editorial writer for The Korea Herald. -- Ed.
By Korea Herald (firstname.lastname@example.org