How the prosecution’s decision to not appeal the Daejang-dong case affects President Lee Jae Myung

President Lee Jae Myung, then leader of the liberal Democratic Party, left, arrives at the Seoul Central District Prosecutors' Office for questioning regarding his alleged involvement in the Daejang-dong scandal on Jan. 28, 2023. [NEWS1]

[EXPLAINER]


The long-running saga over alleged corruption in the Daejang-dong development project in Seongnam, Gyeonggi, took an unexpected turn this month when prosecutors announced they would not contest the sentences handed down by the Seoul Central District Court against key defendants on Oct. 31.
 
By forgoing an appeal, the prosecution effectively abandoned the chance to argue that the defendants — a network of private investors, local officials and political aides — had committed aggravated breach of trust through their roles in the project. The decision also eases legal pressure on President Lee Jae Myung, who served as Seongnam’s mayor when the project began.
 

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The announcement immediately drew protests within the prosecution service and from lawmakers in the conservative People Power Party (PPP), who have long accused Lee of being at the center of the corruption network. The PPP alleged that the Ministry of Justice and the presidential office influenced the decision not to appeal — claims both institutions deny.

What is the Daejang-dong scandal?
 
The scandal stems from a redevelopment project launched in 2015 in the Daejang-dong area of Seongnam, a city just south of Seoul. The Seongnam Development Corporation (SDC), a municipal public enterprise, and Hana Bank led the project in a public-private partnership. Several private firms, including Hwacheon Daeyu Asset Management and its affiliates, were selected as investors.
 
According to court findings and media reports, Hwacheon Daeyu and related firms contributed only around 350 million won ($239,000) to the project, while public and financial institutions covered nearly 93 percent of total costs. Despite their small stake, the private companies reaped about 788.6 billion won in profit, of which prosecutors argue 489.5 billion won should have gone to the SDC, based on their calculation that 70 percent of profits from the project should have gone to the municipal developer. 
 
This disproportionate profit distribution eventually drew scrutiny in late 2021, just as Lee began gearing up for his first unsuccessful presidential run. The findings of investigations launched that year contended that key SDC officials manipulated contracts to favor the private side in exchange for bribes or promises of future payoffs. The arrangement raised questions about how politically connected developers secured such advantageous terms — and who in Seongnam City Hall and the municipal developer approved them at the time.

From left: Hwacheon Daeyu owner Kim Man-bae, former Seongnam Development Corporation acting President Yoo Dong-kyu and lawyer Nam Wook arrive at the Seoul Central District Court in Seocho District, southern Seoul, for their trial on charges of bribery and breach of trust in relation to the Daejang-dong development on Nov. 25, 2022. [JOINT PRESS CORPS]

Who was prosecuted?
 
Prosecutors charged Kim Man-bae, the majority shareholder of Hwacheon Daeyu Asset Management, with orchestrating the Daejang-dong profit scheme. Kim allegedly designed the development structure to channel most of the profits to private investors and promised to pay 42.8 billion won to Yoo Dong-gyu, the SDC’s former acting president, in exchange for ensuring favorable contract terms.
 
In the Oct. 31 verdict, Kim was sentenced to eight years in prison and ordered to forfeit 42.8 billion won for breach of trust, while Yoo received the same prison term and a fine of 400 million won, in addition to forfeiting 810 million won. The court found that Yoo used his position at the SDC to approve project guidelines that guaranteed enormous returns for the private firms despite their minimal investment.
 
Other key participants included Nam Wook, a lawyer in charge of one of Hwacheon Daeyu’s affiliates; Jeong Young-hak, an accountant who managed financial planning and recorded internal profit-sharing discussions; and Jeong Min-yong, former head of the SDC’s Strategic Projects Team, who helped draft tender guidelines favorable to the private side. Each was convicted of participating in the profit-manipulation scheme, receiving prison terms ranging from four to six years, along with fines and asset forfeitures.
 

 
While these figures formed the core nexus of developers and SDC insiders behind the project, prosecutors also alleged that the network extended into the political sphere through Jeong Jin-sang, then-chief of staff to Lee. According to witness testimony and court records, Jeong was informed about the developers’ financial contributions to Lee’s 2014 mayoral re-election campaign and allegedly stood to receive part of Kim Man-bae’s promised payouts through intermediaries.
 
Although Jeong has denied all wrongdoing, investigators regard him as the key conduit linking the business consortium and city hall. His close relationship with both Kim and Yoo positioned him at the intersection of the developers’ private interests and Lee’s political apparatus, suggesting that the scheme may have operated with tacit political support or awareness.
 
Jeong was separately indicted in 2023 on bribery and corruption charges connected to both the Daejang-dong and Wirye development projects, and his trial remains ongoing. The proceedings continue to shape public perceptions of whether Lee, who has consistently denied any involvement, benefited politically or financially from the Daejang-dong project.
 
However, under the Constitution, Lee remains immune from prosecution while in office. His suspended trial on breach-of-trust charges related to his time as Seongnam mayor will resume only after his presidential term ends.

Former acting Prosecutor General Noh Man-seok, center, arrives at the Supreme Prosecutors' Office in Seocho District, southern Seoul, on Nov. 12, two days before he left office. [JANG JIN-YOUNG]

Why was the appeal dropped?
 
Prosecutors initially indicated they would appeal the Oct. 31 verdict but soon reversed course. The decision not to appeal by the Nov. 7 deadline triggered protests from rank-and-file prosecutors and heated debate in the National Assembly over judicial independence.
 
After reports surfaced that the appeal was blocked by higher authorities, Jung Jin-woo, head of the Seoul Central District Prosecutors’ Office, offered to resign on Nov. 8. In a note to reporters, Jung said he failed to persuade the Supreme Prosecutors’ Office to proceed with the appeal.
 
Acting Prosecutor General Noh Man-seok, who eventually resigned on Friday over the controversy, confirmed that the decision followed consultation with Justice Minister Jung Sung-ho, who advised Noh to “decide carefully after considering various circumstances.” The exchange has fueled speculation that the decision reflected political, rather than purely legal, considerations.

President Lee Jae Myung, then leader of the liberal Democratic Party, center, arrives at the Seoul Central District Court to attend his trial on charges of breach of trust and bribery on April 8. Lee's trial was suspended indefinitely after he was elected president in June. [NEWS1]

What happens without an appeal?
 
In its verdict, the trial court applied the general breach-of-trust provision under the Criminal Act, which carries a maximum sentence of 10 years and a fine of up to 30 million won. The court applied the general breach-of-trust provision, and not the aggravated charge set out in the Special Economic Crimes Act, on the basis that the prosecution had failed to prove that the SDC was entitled to 70 percent of development profits. 

By choosing not to appeal, prosecutors gave up the opportunity to argue that the SDC suffered losses large enough to trigger the harsher penalties under the Special Economic Crimes Act, which allows for life imprisonment for aggravated breach of trust — effectively reducing the potential maximum penalty for all defendants, including Lee, should he face related charges in the future.

 
The court acknowledged that Kim Man-bae agreed to share profits with “Yoo’s side,” but it viewed this not as bribery but as an internal division of illicit gains, a distinction that substantially weakened the corruption narrative. 
 
Notably, the verdict stated that “Lee Jae Myung and Jeong Jin-sang appeared to have been informed about how private developers contributed to Lee’s mayoral re-election campaign.” However, without an appeal, prosecutors lost the opportunity to pursue this line of inquiry further — effectively closing a key avenue that might have tied Lee more directly to the developers’ scheme.

Members of the conservative People Power Party hold up placards denouncing the prosecution's decision to not file an appeal in the Daejang-dong case during a rally in front of the National Assembly in Yeouido, western Seoul, on Nov. 12. [LIM HYUN-DONG]

Why the case remains significant
 
The Daejang-dong scandal is one of Korea’s largest real estate corruption cases in recent memory. Prosecutors allege that the SDC should have taken in about 670 billion won from the development but got only about 180 billion won — in effect, losing out on 490 billion won.
 
With the appeal dropped, major questions remain unresolved — about how oversight failed, how deeply politics influenced the deal, and whether prosecutors can independently pursue politically sensitive cases.
 
For Seongnam and the SDC, efforts now turn to recovering public losses through civil lawsuits, a slower and more uncertain process.
 
Politically, the case continues to cast a shadow over President Lee’s administration. The proposal by his Democratic Party (DP) to abolish the breach-of-trust provision under the Criminal Act has drawn sharp criticism, as it could nullify core charges from the first trial and eliminate the legal basis for any future case against him.
 
Tensions have also deepened between the prosecution and the DP after senior prosecutors released a joint statement urging Noh to publicly explain his reasoning for not appealing the Oct. 31 verdict.
 
Senior DP figures have warned prosecutors not to challenge or defy the leadership’s decision. Party officials argued that the refusal to accept the verdict would amount to “political resistance” against the administration. On Nov. 9, Rep. Kim Byung-kee, the DP’s floor leader, declared that the National Assembly should consider measures such as a full-scale inspection of state administration or parliamentary hearings to “stamp out politically motivated prosecutors.”
 
Kim’s remarks reflect the DP’s growing frustration with parts of the prosecutorial service it views as hostile to the government and loyal to former administrations. Party leaders have suggested that continued dissent within the prosecution amounts to bureaucratic insubordination aimed at undermining President Lee. However, legal experts and opposition lawmakers warned that such rhetoric risks politicizing the judiciary and could further erode the already fragile balance between prosecutorial independence and executive oversight.
 
The clash highlights a broader struggle over control of the prosecutorial service, which has long been at the center of Korea’s political battles. While critics accuse the DP of using administrative and legislative tools to discipline dissenting prosecutors, party officials insist their goal is to ensure that prosecutorial power is exercised without political bias or selective enforcement.

BY MICHAEL LEE [lee.junhyuk@joongang.co.kr]