2. B

Attorney D

Law Firm E (Defendant B)

Attorney F, G

However, the execution of the above punishment shall be suspended for five years for Defendant A, and for four years for Defendant B, from the date this judgment became final and conclusive.

【Criminal Power】

Defendant B was sentenced to the suspension of the execution on January 15, 2016 at the Seoul Southern District Court on January 7, 2016 for the crime of violating the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement).

【Criminal Facts】

Defendant A was the representative director of the SH Co., Ltd. (hereinafter “H”) who was a company for manufacturing and selling wired and wireless communications devices, etc. from around 2002 to December 2009, and for whom the funds of the victim H were kept in the course of business. Defendant B, as a bond business operator, was a person who was the advisor of the victim H at the request of Defendant A in order to provide advice on overcoming the financial difficulties of the victim H and the defense of management rights.

On December 2008, the Defendants issued a certificate of deposit with respect to company funds and offered bonds as collateral and purchased the shares of victim H in the name of the borrower and conspired to secure favorable shares in order to protect the right of management and defend the hostile M&A against the victim H.

On December 16, 2008, at the office of the victim H located in the fifth floor of the Seocho-gu Seoul International Building, Defendant A issued the company fund of KRW 10 billion as the certificate of deposit, and Defendant A purchased the company’s shares under the control of 10 billion under the national bank certificate of KRW 2 billion, KRW 1 billion, KRW 5 billion and KRW 1 billion, KRW 2 billion, KRW 10 billion in the certificate of deposit in the company bank, KRW 10 billion in the corporate bank transfer certificate of KRW 2 billion, and all of them were issued to Defendant B in December 2, 2008. Defendant B provided the above 10 billion deposit in the company’s office in Gangnam-gu Seoul Metropolitan Government, and Defendant B purchased the company’s shares under the control of 8 billion in the corporate hub M with the corporate bond of KRW 8 billion and purchased the victim’s shares under the control of H on December 208.

As a result, the Defendants conspired to use 10 billion won of the victim H's funds in the occupational custody of Defendant A for the purpose of defending management rights of Defendant A, thereby embezzlement.

Summary of Evidence

1. Defendants’ respective legal statements

1. First prosecutor's protocol of interrogation of Defendant A (including B and P)

1. Statement to the Prosecutor's Office;

1. Investigation report (H account books - 10 billion won data on the details of the issuance of CDs since 2008);

1. Previous convictions in judgment: Residents' inquiry, criminal records inquiry, investigation reports (suspect B previous convictions and related judgments attached);

Application of Statutes

1. Article relevant to the facts constituting an offense and the selection of punishment;

A. Defendant A

Article 3(1)1 of the former Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Amended by Act No. 11304, Feb. 10, 2012); Articles 356, 355(1), and 30 of the Criminal Act (the main sentence of Article 42 of the former Criminal Act (Amended by Act No. 10259, Apr. 15, 2010)

B. Defendant B

Article 3(1)1 of the former Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Amended by Act No. 11304, Feb. 10, 2012); Articles 356, 355(1), and 30 of the Criminal Act (the main sentence of Article 42 of the former Criminal Act (Amended by Act No. 10259, Apr. 15, 2010)

1. Handling concurrent crimes;

Defendant B: the latter part of Article 37 and Article 39(1) of the Criminal Act

1. Discretionary mitigation;

Articles 53 and 55(1)3 of each Criminal Code (The following favorable circumstances shall be considered for the reasons for sentencing):

1. Suspension of execution;

Article 62(1) of each Criminal Code (The following favorable circumstances shall be considered among the reasons for sentencing):

Judgment on the Defendants and their defense counsel's arguments

1. Summary of the Defendants and their defense counsel’s assertion

A. As a liquidity crisis occurs due to the KIKO situation, Defendant A issued 10 billion won as a certificate of deposit to prepare for the seizure of the company’s deposit account in the victim H’s deposit account, and kept the borrowed stocks and purchased the borrowed stocks by lending money as security of the above certificate of deposit. Since the borrowed stocks are in substance owned by the victim’s company, only the form of the victim’s company’s property ownership changes. As such, the Defendants’ act is not the embezzlement of the company’s funds or certificate of deposit, but the risk of not collecting the certificate of deposit offered as security, or the risk of causing the loss due to holding the company’s assets in the form of stocks, not the embezzlement of the company’s funds or certificate of deposit, and the price fluctuation in the company’s assets in the form of stocks, the profits acquired by the Defendants cannot be calculated as “the defense of management rights”, Article 3 of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes, which is aggravated

B. Defendant A was engaged in a series of conduct in order to secure a favorable interest in management judgment that the company should be protected from hostile M&A; and there was no intention to obtain illegal gains in that Defendant A attempted to recover the certificate of deposit offered as security from the beginning.

C. Defendant B is merely an aiding and abetting the purchase of a borrowed name shares upon Defendant A’s request. As such, Defendant B is nothing more than an aiding and abetting crime without functional control.

2. Determination

A. Determination on the assertion that the act of embezzlement constitutes an act of embezzlement, not an act of embezzlement

1) In light of the following facts acknowledged by the evidence supra, the fact that the Defendants conspired to commit embezzlement of KRW 10 billion to achieve the personal purpose of Defendant A’s defense of management rights is sufficiently recognized.

① At the time of the prosecutor’s investigation, Defendant A stated that Q, a second shareholder of H, was aware of having secured shares in the market and that, in order to protect his management right, Defendant A withdrawn KRW 10 billion from the company’s funds as a certificate of deposit with a certificate of deposit and made it available to Defendant B to secure friendly shares (in the investigation record 373 pages), Defendant A, a director in charge of finance of H, issued a certificate of deposit with KRW 10 billion out of the company’s funds and immediately delivered it to Defendant B (in the investigation record 488 pages).

② According to the account books of the victim H, the term deposit and installment savings amounting to KRW 10 billion is terminated on December 16, 2008 and immediately issued a certificate of deposit amounting to KRW 10 billion on the same day. Accordingly, it conforms to each of the above statements that the Plaintiff issued the certificate of deposit amounting to KRW 10 billion in company funds and immediately delivered it to Defendant B.

2) An act of embezzlement by a person who keeps another’s property without the consent of the person is an act of embezzlement expressing the intent of unlawful acquisition, and the act of offering another’s property as security under private law is null and void or the act of infringing on the ownership of the said property occurs (see, e.g., Supreme Court Decision 2002Do2219, Nov. 13, 200). Even if Defendant A issued and kept a certificate of deposit in comparison with KIKO incident and offered and borrowed money as security, unlike deposit claims, bills, checks, etc., the certificate of deposit is deemed a realized property, such as cash or cashier’s checks, and thus, the act of arbitrarily offering the certificate of deposit owned by the company as security constitutes embezzlement of the property equivalent to its face value (see, e.g., Supreme Court Decision 2012Do1585, Apr. 11, 2013).

3) In addition, the Defendants failed to submit all the data that can be acknowledged by asserting that the actual owner of the borrowed-name stocks is the victim H and the holding form of the assets vary, and considering the fact that the acquisition of the company’s own stocks is strictly restricted pursuant to Article 341 of the Commercial Act, and that the Defendants purchased the borrowed-name stocks for the purpose of defending Defendant A’s management right, it cannot be deemed that the actual owner of the borrowed-name stocks is the victim H because it is difficult to regard the actual owner of the borrowed-name stocks as the victim H, thereby changing the form of the victim H’

4) Even if the Defendants’ act constitutes a breach of trust, not embezzlement, rather than embezzlement, if the Defendants were to receive any consideration, and provided the certificate of deposit owned by the company as a security for a loan to Defendant A, and the loan was made, then the Defendants acquired financial benefits (8 billion won) equivalent to the amount of the security value and inflicted financial losses on the company. Thus, the Defendants cannot calculate the amount of the amount of the profit from breach of trust, and therefore, the assertion that Article 3 of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes is not applicable is not acceptable.

B. Determination as to the assertion that there was no intention of illegal acquisition

1) In the crime of embezzlement, an unlawful acquisition intent refers to an intention to dispose of another person’s property as if the person, who keeps another’s property, owns one’s own property or a third party’s own interest, contrary to the purport of the consignment. Therefore, in a case where the said custodian disposes of the property against the owner’s interest for his/her own or a third party’s interest, the intent of unlawful acquisition of the property may be recognized (see, e.g., Supreme Court Decision 2013Do658, Aug. 30, 2016).

2) In order to secure Defendant A’s favorable interests, inasmuch as the Defendants conspired to borrow and use the certificate of deposit issued with the funds of the victim H arbitrarily to the bond company as collateral and purchased the borrowed stocks, the Defendants may be acknowledged to have had the intent to dispose of the victim H’s property without authority as if they were to own the property in violation of the purpose of entrustment for the purpose of seeking the benefit of Defendant A, not the victim H, the owner of the instant property. Therefore, regardless of whether the Defendants intended to recover the certificate of deposit, the Defendants should have expressed the intent to obtain unlawful acquisition in the crime of embezzlement.

3) In addition, even if there was a hostile M&A as the Defendants’ assertion, it is a matter that Defendant A, managing the victim H, using a legitimate means to resolve in a way that defends his management right, and the purchase of borrowed stocks with the funds of the victim H cannot be deemed as an act aimed at the benefit of the victim H, and thus, the intent of unlawful acquisition of embezzlement can be sufficiently recognized.

4) The Defendants’ assertion that there was no intention of unlawful acquisition is rejected.

C. Determination as to the assertion that Defendant B is merely an aiding and abetting offender

1) In order to establish a joint principal offender under Article 30 of the Criminal Act, it is necessary to implement a crime through functional control based on the joint will as a subjective element. Here, the intent of joint processing is insufficient to recognize another person’s criminal act and to allow it without restraint, and it should be one of the joint intent to commit a specific criminal act with another’s criminal intent, and it should be transferred to one’s execution by using another’s criminal act (see, e.g., Supreme Court Decision 2002Do7477, Mar. 28, 2003). Meanwhile, since the essence of joint principal offender is in functional control by division of roles, it is contrary to the fact that the joint principal offender is functional control by the joint principal doctor, and that there is no control over the act (see, e.g., Supreme Court Decision 2012Do12732, Jan. 10, 2013).

2) According to the following facts acknowledged by each protocol of examination of the suspect against Defendant A, protocol of examination of the prosecution against J, and written confirmation of the facts prepared by Defendant B, the Defendants can sufficiently recognize that Defendant B had functional control over the instant crime through division of work roles. As such, Defendants constitute co-principals, and Defendant B and their defense counsel’s assertion that the Defendants are merely aiding and abetting offenders is not accepted.

1. Defendant A has secured shares to take part in management by the 2nd shareholder of Victim H.

In order to hear the litigation and defend his management right, he requested Defendant B to use the H’s advisory position and seek advice.

② The Defendants discussed the means of defending management rights, and Defendant B, who was in need of funds for the purchase of friendly shares, said Defendant A said that Defendant B would use the certificate of deposit worth KRW 10 billion issued with Defendant H’s funds to purchase friendly shares. Upon receipt of Defendant A’s instructions, J issued the certificate of deposit worth KRW 10 billion with Defendant H’s funds, and immediately delivered the certificate to Defendant B.

③ On December 208, 2008, Defendant B offered the above 10 billion won deposit certificate to M as security and borrowed KRW 8 billion.

④ Defendant B purchased and managed the shares of Victim H under the name of N, which is one’s own land, using the above eight billion won, thereby securing a favorable interest in Defendant A.

Reasons for sentencing

1. Defendant A

(a) Scope of punishment by law: Imprisonment with prison labor for not less than two years and six months but not more than seven years and six months;

(b) Scope of recommending punishment according to the application of the sentencing criteria: Imprisonment with prison labor for not less than two years and not more than six months but not more than five years;

【Scope of Recommendation】

Type 4 (5 billion won to less than 30 billion won) Reduction Area (2 year and six months to five years)

【Special Convicted Persons】

○ Reduction element: A significant damage has been recovered.

(c) Determination of sentence: Three years of imprisonment and five years of suspended sentence;

The crime of this case is an unfavorable circumstance to the defendant that the defendant, who is the representative director of the victim company listed on KOSDAQ, embezzled company funds for personal purposes to defend his management right, and that the crime is not good, and that the amount of damage caused by embezzlement reaches ten billion won.

However, the Defendant’s primary crime with no record of criminal punishment and reflects his behavior in depth, and the Defendant’s withdrawal of the certificate of deposit in this case and recovery of actual damage is favorable to the Defendant, with the money that the Defendant sold the shares and management rights to the victim company that he had held after the crime in this case.

Other factors of sentencing, such as the age, character and conduct, environment, motive and consequence of the crime, and circumstances after the crime, shall be determined as per the order, comprehensively taking into account.

2. Defendant B

(a) Scope of punishment by law: Imprisonment with prison labor for not less than two years and six months but not more than seven years and six months;

B. Non-application of the sentencing criteria: The sentencing criteria is not applicable since the crime in the judgment is in the relation of the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement) and the latter concurrent crimes of Article 37 of the Criminal Act, which became final and conclusive on January

(c) Determination of sentence: Imprisonment with prison labor for not less than two years and six months, and four years of suspension of execution;

Defendant A had been aware that Defendant A intended to arbitrarily use the funds of the victim company and purchase a favorable share for the defense of management right, and in collusion with Defendant A, committed the instant crime, and the amount of damage caused by the instant crime reaches KRW 10 billion is disadvantageous to the Defendant.

However, it is difficult to see that the defendant led the crime of this case upon the request of the defendant A to defend the right of management. As seen earlier, the damage was actually recovered in full, the defendant reflects his behavior in depth, and the defendant should consider the equity with the case where the judgment with the relation of concurrent crimes under the latter part of Article 37 of the Criminal Act becomes final and conclusive at the same time.

Other factors of sentencing, such as the age, character and conduct, environment, motive and consequence of the crime, and circumstances after the crime, shall be determined as per the order, comprehensively taking into account.

Judges of the High Instance

Judges Kim Dong-dong