[비즈한국] Gallery K, a major "art-tech" (art investment) firm that introduced a new trend in art investment, is now in crisis. Gallery K proposed a 7–9% annual return, promising to "rent out the artwork you purchase and provide you with the proceeds." However, the company has been sued by some investors for fraud and other charges, as it allegedly failed to fulfill these obligations. As the law firm Daeryun plans to organize a class-action lawsuit for the victims of Gallery K's alleged fraud, the company's judicial risks are highly likely to escalate.
Victims file lawsuits, claiming "consignment rental agreements were not properly fulfilled"
Gallery K was established in December 2017. It touted a structure where it would purchase artwork using investors' funds in partnership with dealers, artists, and galleries, and then generate profit by renting out these pieces. Last year, the company engaged in aggressive marketing, including hiring movie star Ha Jung-woo as an advertising model. Gallery K reported that its sales increased annually—from 13 billion KRW in 2020 to 24.5 billion KRW in 2021, 54.6 billion KRW in 2022, and 66.3 billion KRW in 2023—with operating profits reaching 7 billion KRW in 2022.
However, on the 2nd, the law firm Daeryun filed a criminal complaint against Gallery K with the Financial Investigation Unit of the Seoul Metropolitan Police Agency. The complaint targets Gallery K, its CEO, and its headquarters executives. Daeryun claims that while Gallery K entered into "consignment rental contracts" with investors—promising to pay them 7–9% of the purchase price monthly as usage fees—the company failed to properly fulfill these agreements.
According to Daeryun, Gallery K enticed investors by emphasizing that if purchased artwork was not sold within a month, the company would buy it back itself to guarantee the principal. Contrary to these promises, a growing number of investors have been unable to recover their investments. So far, dozens of victims have expressed their intent to sue through Daeryun, and the damages are estimated to reach around 1 billion KRW. The victims stated that when they asked Gallery K for the storage location of their purchased artworks, they received no answer. Some estimates suggest that the total damages from unfulfilled contracts could reach 100 billion KRW.
The victims argue, "Gallery K appears to have operated as a Ponzi scheme, paying existing investors with money received from new investors, and thus must be severely punished." In response to the growing number of victims, the law firm Daeryun has established a dedicated team for the Gallery K fraud case.
Can an acquisition save the company?
Amidst this situation, attention is focused on whether an attempt to acquire Gallery K will serve as a turning point for the case.
Hedge Fund J has been selected as the preferred bidder for the acquisition of Gallery K through Meta Ventures (CEO Park Se-jung). Currently, an acquisition team consisting of lawyers, accountants, and tax experts is conducting due diligence and audits of Gallery K's headquarters. While Gallery K’s financial statements showed that its net assets were lower than its total liabilities, the team reportedly confirmed the existence of the artworks in question. After many twists and turns, Meta Ventures has decided to proceed with the acquisition.
The law firm Yuan, representing Hedge Fund J and Meta Ventures, explained, "Gallery K's financial structure was worse than initially described. We know it is a company in crisis, but we believe that the network Gallery K has built with dealers and artists is valuable, so we judged it worth acquiring at a fair price."
The remaining key issue is expected to be negotiations with investors and creditors, including those who have already filed lawsuits. Meta Ventures and Hedge Fund J maintain that, given the current situation, it is necessary to negotiate a reduction in debt with Gallery K's creditors. They argue that it is impossible to honor the full investment amounts given the company’s deteriorated financial state, and they plan to communicate with creditors to resolve this.
The law firm Yuan stated, "We intend to obtain powers of attorney from investors for the acquisition process," adding, "We plan to fully explain the current situation of Gallery K and obtain the consent of the creditors."