From Simple Fraud to Multi-Billion Won Financial Crime: Equipment Rental Operators Indicted Under Detention

Executives of a general equipment rental company have been indicted and detained following a prosecution investigation for allegedly orchestrating a multi-billion won financial fraud scheme by entering into false contracts with business owners in need of capital and deceiving financial institutions.

The Criminal Division 4 of the Changwon District Prosecutors' Office (Chief Prosecutor Lee Jae-won) held a press briefing at the office's small conference room yesterday (July 7) and announced that the CEO of the rental company, identified as A (57), and an executive director, B (55), have been indicted under detention on charges including fraud under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes.

While operating a general equipment rental business based in Changwon, Gyeongsangnam-do, A is accused of obtaining 14.1 billion won in financial service funds between October 2021 and October 2024 by entering into fake equipment rental contracts with corporations and individual business owners facing financial difficulties and using the resulting rental receivables.

B is accused of conspiring with A to commit the crimes while managing the company's internal affairs starting in March 2023.

The investigation revealed that the pair used a method known as "back-renting," where they would purchase equipment already owned by business owners who entered into the false contracts, and then structure the deal as if they were leasing the same equipment back to those owners.

They were also found to have used a "blank-renting" method, where contracts were signed as if renting out equipment that did not actually exist.

The items falsely claimed to be under rental contracts with businesses nationwide ranged from high-end medical devices to massage chairs, treadmills, beds, and refrigerators, with 415 confirmed cases of fraudulent contracts.

Based on these false contracts with hospitals, factories, hotels, and restaurants in need of cash, the suspects applied for and received funds from four specialized credit finance companies through factoring, installment, and leasing services.

Factoring refers to a financial service where a financial institution provides funds to a company in exchange for commercial bills or accounts receivable as collateral.

It was discovered that A's side transferred the rental receivables based on the false contracts to financial companies, which then paid the transfer proceeds to A's side.

Upon receiving the funds from the four financial companies, A's side would take an approximately 11 percent commission (worth 1.6 billion won) and pass the remaining funds to the business owners, who would then make monthly installment payments to the financial companies.

In addition to these crimes, the prosecution confirmed that between July 2021 and May of last year, A provided a total of 162 million won in cash and 43 million won in luxury car rental fees to C (43), an employee at a financial company, in exchange for favors such as expedited screening of financial services. A was also charged with bribery for breach of trust.

C has been indicted without detention on charges of accepting bribes for breach of trust.

The case initially began with a police investigation following a complaint from a financial company alleging that a business owner who had entered into a false contract with A's side had defrauded them of 30 million won.

The prosecution, which later took over the case, requested supplementary investigations, believing it was necessary to examine whether there was collusion between A's side and the business owners. However, the case was resubmitted without the details of the crime being uncovered during the police investigation phase.

It was reported that the police did not conduct search and seizure operations or account tracking during the supplementary investigation process.

The prosecution stated that the interim investigation results show 14.1 billion won in confirmed fraud damages, and they are currently investigating additional crimes, estimating the total scale of the fraud to be in the 40 billion won range.

There are 596 cases of debt involving A's side that have developed default risks, accounting for 54.5 percent of the total 1,094 cases.

A prosecution official stated, "We will respond strictly to financial corruption crimes and do our utmost to establish fair order in the financial service market so that innocent, general users of financial services do not suffer harm."

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.