Kim Sun-kwon, the former CEO and founder of Caffé Bene, a first-generation homegrown Korean coffee franchise, has been sentenced to prison in a first-instance ruling on charges including fraud committed against building owners during a nursing home construction project. The court determined that the case constitutes a crime subject to criminal punishment rather than a mere business failure.
The 29th Criminal Division of the Seoul Central District Court (presiding judge Eom Ki-pyo) sentenced Kim on the 22nd to three years in prison on charges including violation of the Act on the Aggravated Punishment of Specific Economic Crimes (fraud). However, the court did not order his detention in the courtroom in order to give the victims an opportunity to recover their losses and reach a settlement.
"He deceived the victims and defrauded them of tens of billions of won, including land mortgage loans and construction progress loans," the court said, adding that "the defendant committed embezzlement by arbitrarily using funds of the victim companies that he effectively operated and controlled." The court further rebuked him, stating that "nevertheless, the defendant is evading responsibility by claiming that he had the intent and ability to carry out the nursing home construction at the time of concluding contracts with the victims." However, the court took into account as favorable sentencing factors that he acknowledged the objective facts, that he appeared to have committed the deception with willful negligence, and that it was difficult to view the crime as having been committed solely for personal gain.
Kim was indicted in June last year on charges of deceiving building owners into believing that the nursing home construction project would be completed normally, thereby defrauding them of tens of billions of won in down payments, interim payments, and construction fees. He also faces embezzlement charges for taking funds from companies he effectively operated, under the pretext of advance payments and salaries, and using them for real estate purchases, stock investments, and personal expenses. He is further charged with causing losses to the victims by registering provisional registrations in the name of a third party on land for which sales contracts had already been concluded, and with deceiving the victims into lifting provisional seizures.
The court found most of the charges against Kim guilty. "At the time of concluding the nursing home construction contracts, the defendant was in a state of credit delinquency and his personal financial situation had deteriorated, yet he carried out construction simultaneously across the country," the court said. "Without having prepared any concrete plan to raise funds, he did not properly inform the victims, the building owners, of these circumstances." The court added that "from the time the contracts were concluded, in a situation where the likelihood of completing construction was low, he is assessed to have received and defrauded funds from the victims without concrete construction and funding plans."
The court determined that the embezzlement charges were also established, considering that he diverted construction payments received from the victims to other construction sites or used them for personal purposes. It found that the act of registering provisional registrations in the name of a third party on land for which sales contracts had already been concluded amounted to breach of trust that betrayed the relationship of trust with the victims, and that the act of deceiving them into lifting provisional seizures by promising to complete the nursing home also constituted fraud. However, since it was difficult to recognize that the amount defrauded or gained per victim reached 500 million won or more, the court recognized only some ordinary fraud and breach of trust under the Criminal Act, rather than fraud and breach of trust under the Special Economic Crimes Law. For the embezzlement charges as well, the court determined that intent to unlawfully acquire had not been proven for some of the amount.
