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[ Legal Issues in Anbyeon] Studywork's Bankruptcy Filing and Legal Issues: Was It a Fraud from the Start?!
The recent news that Studywork has shut down its service and filed for bankruptcy has caused shockwaves. Studywork is a challenge-based learning platform where users deposit a certain amount of deposit, complete learning tasks, and achieve their goals within a set period of time. If they achieve their goals, they receive their deposit back in full and additional rewards. Conversely, users who fail to achieve their goals are either denied a refund or have their deposits forfeited. The company adopted a business model that relies on these deposits, forfeited funds, and the acquisition of new users to pay out rewards and refunds. The company also actively leveraged influencer marketing to increase user participation. However, Studywork's shutdown and bankruptcy proceedings go beyond the simple failure of a startup and expose the structural vulnerabilities and legal loopholes inherent in deposit-based platform businesses. Specifically, the legal nature of user deposits, the possibility of refunds, the legal liability for accepting new payments right before service termination, and the potential for similarities to Ponzi schemes are likely to leave important precedents and implications for similar services in the future.
First, we need to examine the possibility of a deposit refund, which is the biggest concern among users. Based on the pitch deck released by Studywork, Studywork appears to have suffered significant capital impairment in 2024, with assets of approximately 345 million won and liabilities of approximately 766 million won. In bankruptcy proceedings, users' claims for deposit refunds are generally considered general bankruptcy claims. Since the deposit is not held in a separate trust, deposited, or secured by a security interest, it is placed in a lower priority compared to senior claims such as wage claims, tax claims, and secured claims. As a result, users may receive little or no dividends.
However, a key characteristic of this case is that the refund of deposits to users is not solely through the traditional court bankruptcy distribution process, but rather through payment cancellations and refunds by credit card companies and payment gateway companies (PG) providers. Media reports indicate that PG providers such as NICE Information & Communication and Payletter, as well as credit card companies, are processing payment cancellations and refunds. In such cases, users receive refunds directly from the card companies, and the card companies or PG providers exercise their right of subrogation against Studywork for the corresponding amount, effectively becoming bankruptcy creditors. In this case, regular users are not directly burdened with the burden of payment priority issues as bankruptcy creditors. Therefore, the actual refund rate is likely to be relatively high, compared to the extremely low expected distribution rate based solely on court bankruptcy proceedings. This payment cancellation structure is also the reason why the user damage in this case is expected to be less severe than expected.
The next issue is the legal assessment of the company's continued collection of new deposits until just before service termination. Studywork's Terms of Service stipulates that individual notice must be given at least three months in advance if service termination is necessary for business reasons. If the company, despite this, continues to accept new payments and deposits until the imminent termination of service, this constitutes a violation of the Terms of Service and could even be considered criminal fraud. However, if the company is already insolvent and entering bankruptcy proceedings, the effectiveness of civil liability is limited. Ultimately, the key issue will be whether such actions constitute fraud. Fraud under criminal law requires deception, acquisition of a financial benefit, and intent. If the company was internally aware of insolvency or the inevitability of bankruptcy, yet concealed this fact and misled users into making new payments by falsely believing that their deposits would be refunded, this could constitute deception. In particular, some reports have suggested that the company was internally preparing for the service termination approximately ten days prior to the termination. If this is confirmed during the investigation, the possibility of fraud charges being filed against users who made payments after that point in time will significantly increase.
Another key issue is whether this incident resembles a commonly referred to Ponzi scheme. Based on economic substance, Studywork's business structure bears significant resemblance to a Ponzi scheme. While the company claims to pay deposits and prizes when users achieve their goals, these funds appear to be primarily funded by deposits from new users and confiscated deposits from existing users who fail to meet their goals, rather than through ongoing operating profits. This resembles a typical Ponzi-style cash flow structure, where payments become impossible without a steady influx of new users. Furthermore, Studywork abruptly announced the termination of its service and bankruptcy shortly after rapidly increasing its user base through aggressive marketing campaigns utilizing popular YouTubers and singers. These facts go beyond mere management failure and can serve as crucial circumstantial evidence in determining the intent of fraud. If management, aware of the potential for financial insolvency, induced a large influx of new funds and used these new deposits to buy time by continuing to pay out prizes and refunds to existing users, this would likely constitute fraud. While it may appear legally different from typical investment fraud, it could be considered a criminal act comparable to a Ponzi scheme. Furthermore, if evidence suggests that the deposit was improperly used for prize money or operating expenses, charges of embezzlement or breach of trust may also be considered. Furthermore, if false information was provided during advertising or promotional activities, violations of the Electronic Commerce Act or the Fair Labeling and Advertising Act could also be considered.
Meanwhile, this incident has brought renewed attention to whether deposit-based challenge services are subject to the Electronic Financial Transactions Act. The Electronic Financial Transactions Act regulates businesses that perform electronic payment and settlement functions, such as prepaid electronic payment instrument issuers and electronic payment gateways (PGs). Studywork's deposit is not ostensibly a means of payment, but rather a contractual deposit that is refundable only upon fulfillment of service conditions. Therefore, even if the company claims it is simply a deposit, it would be difficult to classify it as a prepaid electronic payment instrument under the current Electronic Financial Transactions Act. For this reason, deposit-based challenge services have operated outside of the Electronic Financial Transactions Act's regulatory oversight, and this incident clearly demonstrates how this institutional gap can lead to actual consumer harm. From a policy perspective, the structure of collecting advance payments from multiple consumers, holding them for an extended period, and then refunding them upon fulfillment of certain conditions effectively functions similarly to the issuance of prepaid electronic payment instruments. The same consumer protection mechanisms, such as deposits, trusts, and payment guarantees, are also required. Nevertheless, the difficulty in directly regulating this under the current legal system is a clear limitation, and this is a task that must be supplemented through future legislation.
The Studywork incident isn't simply a matter of a single company's bankruptcy. It clearly demonstrates the need for a comprehensive review of the structural risks of the deposit-based platform model, the blind spots in payment and financial regulation, and even the scope of executive criminal liability. Unless this incident prompts legal and institutional reforms across similar services, a second or third Studywork incident could occur at any time.
Inquiry for information
Attorney Heechul Ahn 010-9135-4773 / heechul.an@dlglaw.co.kr
Simharu, Senior Manager, PR Marketing Team 010-9458-6068 / ru.sim@dlglaw.co.kr
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