Social Fundraising Clubs Set for Collapse

A number of “gye,” or a social club of people who pool their money together and take turns in taking the combined sum over a period of time, is in danger of breaking up in Seoul’s posh district of Gangnam.

The collapse of the largest gye “Dabokhoe” and a decline in member dues are being cited as the main reasons.

A gye usually has 21 members, including the leader, who oftentimes are close friends. Each member pays a set amount per month and members bid to receive the combined funds of all members every month.

The person who promises to pay the highest interest receives the amount, which is essentially a loan. The person who gets the payout first pays the most interest while the one to get it last pays the least.

A Dabokhoe member “Gwon” filed a lawsuit yesterday with the Seoul Central District Court against Dabokhoe’s founder “Han,” who has gone into hiding after her gye’s members lost 1.35 billion won (1.03 million U.S. dollars).

Gwon said she joined Dabokhoe on Han’s recommendation and deposited 50 million won (38,200 dollars) in August 2007. Han, however, failed to return Gwon’s money and even failed to repay 300 million won (229,000 dollars) she borrowed from Gwon in December the same year.

"Han told me that she would make payments under my name to other gye as a form of debt repayment, but broke her promise, making me pay for the rest of the period,” Gwon added.

Thirty other Dabokhoe members will also sue Han.

The member who received Dabokhoe’s payout first disappeared to avoid paying high interest, leaving remaining members and the organizer to shoulder the responsibility. The larger the gye, the more likely that the organizer will bilk members due to the complicated fund distribution system.

The damage has spread because both members and organizers usually pay for one gye with money from another after joining multiple gye. In this situation, the breakup of the largest gye has pushed others to the brink of collapse.

With organizers in the Gangnam area running their gye with money drawn from other gye and lending to each other in emergencies, a series of gye collapses are expected.

Since a gye operates outside of legal boundaries, there is no guarantee of debt repayment.

Lim Yoon-tae, an attorney for the victims, said, “To get money back from an organizer, a victim must prove that the gye organizer misappropriated the money. But this is really difficult. Victims can also collect their money from those who have already received their payouts. But this method is also ineffective because the organizer has refused to provide relevant documents.”

The head prosecutor at the Seoul Central District Court said, “Though these associations are called gye, they earn high profits for members through investments in private loan companies and corporate mergers and acquisitions. So we can crack down on these associations by invoking financing laws.”

dawn@donga.com neo@donga.com