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Was 'Purchase Commitment' Wording a Mistake? Controversy Over Mismanagement of 'Apgujeong Commerce Building' Fractional Investment

[비즈한국] Allegations of mis-selling have been raised against Kasa (operated by Kasa Korea), the nation's No. 1 real estate fractional investment platform, during a public offering. In September 2023, while conducting a public offering for a commercial building in Sinsa-dong, Seoul, Kasa specified a "purchase commitment" in its investment prospectus, but replaced it with a version that omitted the commitment after the subscription period ended, without providing separate notice. Although Kasa explained it as a "simple mistake," critics point out that enhanced management and oversight are necessary as these new types of profit-sharing securities approach formal institutional integration.

On August 11, 2023, Kasa unveiled its 7th Digital Asset-Backed Securities (DABS) product, the "Apgujeong Commerce Building," and held subscriptions from September 6 to 8 of that year. The Apgujeong Commerce Building was the largest scale (16.7 billion KRW) among Kasa’s public offerings and the first product offered since the company was acquired by Daishin Financial Group. Daishin Financial Group entered the real estate fractional investment market when it acquired Kasa Korea in March 2023.

Located in Sinsa-dong, Gangnam-gu, Seoul, the Apgujeong Commerce Building was leased until September 2025 by GFFG, which operates trendy food and beverage brands such as "Knotted Donut," "Downtowner," and "Hojokban." It is also notable for being situated in the Apgujeong-Dosan commercial district, a mecca for fashion and beauty trends.

The Apgujeong Commerce Building successfully attracted investors and drew significant interest during the subscription period. Because the building was offered at a price lower than the market rate, investors anticipated capital gains upon sale. Perhaps thanks to this, Kasa successfully sold the building just one year after the public offering. The building sold for 17.2 billion KRW, leaving Kasa with a profit of approximately 500 million KRW over the initial offering price.

However, allegations have surfaced that Kasa took no action despite the occurrence of mis-selling during the public offering process of the Apgujeong Commerce Building. The investment prospectus disclosed by Kasa on September 6, 2023, the first day of the subscription, contained information regarding a "purchase commitment letter," but after the subscription ended on October 5, it was replaced with a version that omitted this information. Kasa did not provide any notice or correction filing regarding the change to the investment prospectus.

Real estate fractional investors earn income from rental returns (dividend income), trading gains from DABS, and capital gains from the sale of the building (sale dividends). If a building has a confirmed purchase commitment, investors can reduce losses caused by potential vacancies or delays in building sales. Therefore, the presence of a purchase commitment is a factor that reduces investment risk and influences investment decisions.

A Kasa investor, identified as A, discovered in September of this year that the purchase commitment details had disappeared from the Apgujeong Commerce Building investment prospectus. Believing there was potential for a violation of disclosure obligations, the investor filed a complaint with the Financial Supervisory Service (FSS) and confirmed that Kasa had submitted a securities registration statement to financial authorities that lacked the purchase commitment details.

Kasa responded that the reason for uploading a different investment prospectus to the FSS was a "mistake due to an imperfect internal control system and staff incompetence." The company told Bizhankook, "When conducting a public offering, we disclose securities registration statements and investment prospectuses twice. The principle is to upload the same documents for both the first and second filings, but an incorrect file was posted during the second disclosure." They added, "We failed to discover it during the public offering period and replaced it with the normal file after the offering ended."

However, questions regarding the purchase commitment remain. According to the purchase commitment letter received by the trustee, Korea Real Estate Investment & Trust 034830, the buyer was Daishin F&I, and the purchase method was a "private contract." Daishin F&I is an affiliate of Daishin Financial Group specializing in non-performing loan (NPL) investments and is 100% owned by Daishin Securities 003540. If the deal had proceeded, it could have raised concerns about conflicts of interest due to inter-affiliate trading. Regarding this, Kasa stated, "It was a private contract following a 'public auction' procedure, which is slightly different from a general private contract, and participation in the bidding was open. We determined that since the public auction process is managed by the trustee, the possibility of conflicts of interest could be isolated (blocked)."

Currently, fractional investments in real estate, music copyrights, and art are classified as new types of "profit-sharing securities." As there is no dedicated industry law yet and the Capital Markets Act is not fully applicable, fractional investment firms operate based on innovative financial services. Financial authorities also supervise them according to the "Special Act on Support for Financial Innovation." Consequently, it is difficult to sanction accidents like Kasa's disclosure error by applying the Capital Markets Act. An FSS official stated, "While there were procedural issues, innovative financial service providers cannot be regulated in the same way as general listed companies."

Some point out that as fractional investments are defined as securities and are on the verge of institutional integration, the government should strengthen management and oversight now that the market has already formed. If such a disclosure violation had occurred as a "mistake" at a general financial investment firm, the repercussions would likely have been significant. Investor A argued, "The fact that the FSS only became aware of this problem after receiving a complaint demonstrates a regulatory gap," adding, "It is problematic to respond lukewarmly just because there are no investor losses."

Regarding the controversy, Kasa stated, "The exposure of incorrect documents and the omission of notice regarding the revision after reposting the investment prospectus were our negligence. We have now strengthened procedures such as disclosures through internal regulations. We will be thorough in handover processes and procedures for staff to ensure this does not happen again."