A Seoul High Court division has determined that funds executives invested through a single account in a fraudulent furniture scheme constitute personal losses rather than deductible business expenses.
Court Upholds Prosecution’s Position
The Fourth Division of the Seoul High Court, presided over by Judge Kim Young-min, conducted a joint trial on March 6 involving three executives from Company A: warehouse manager Mr. Jang (in his 40s), sales manager Mr. Choi, and accounting manager Mr. Lee. The court thoroughly reviewed records from the prosecution and defense before announcing its decision on March 10.
Officials confirmed the executives funneled investments into Company A via a subordinate, disguised as joint furniture purchases. However, Company A failed to deliver any products. The scheme promised approximately 5% interest over four months, with principal repayment in the fifth month—a classic lure used in the scam.
Details of the Fraudulent Scheme
The subordinate, identified as Mr. B, received a 20-year prison sentence in February 2023 for similar fraud after a court trial. Between 2018 and 2020, the executives had previously collected minor interest payments from Company A, totaling around 909 million won for Mr. Jang, 2,411 million won for Mr. Choi, and 4,043 million won for Mr. Lee.
Prosecutors argued these payments were unrelated to business operations and treated them as personal gains. The executives countered that the transactions involved joint procurement with Company A and commissions paid to Mr. B, qualifying as business losses.
Key Statements from the Ruling
The court rejected the defense’s claims, classifying the losses as private rather than operational. Deputy Chief Prosecutor stated, “The executives did not bear risks associated with furniture commission sales but simply received pure interest payments, which do not align with business losses.”
The prosecutor added, “Company A did not actually sell furniture due to circumstantial reasons.” This ruling denies the executives’ attempt to deduct the scam-related losses as business expenses.
