[2] The meaning of "illegal means, plans, or tricks" under Article 178 (1) 1 of the Financial Investment Services and Capital Markets Act

1. Determination as to the Defendants’ violation of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) regarding capital increase with consideration for new shares issued by Nonindicted Co. 1 (hereinafter “Nonindicted Co. 1”)

A. The term “material fact” under Article 178(1)2 of the Capital Markets Act is the same purport as “material nonpublic information” under Article 174(1) of the same Act, which is a provision prohibiting the use of material nonpublic information. In addition, the act of actively using a document, such as continuing to report to the relevant agency to the effect that it may affect investors’ investment judgment, which may have a significant impact on the property and management of the pertinent corporation, fair trade in specific securities, etc. and the protection of investors (see Supreme Court Decision 2005Do8652, Feb. 9, 2006). Furthermore, the act of actively using the document, such as making a false statement or representation of the above material fact, can be determined by comprehensively taking into account the following factors into account: (a) whether the document was made public without correction; and (b) whether the document would have an impact on investors’ investment judgment; and (c) whether the act of actively reporting it to the relevant agency in order to use it as an opportunity to earn money or other property benefits.

B. On the grounds indicated in its reasoning, the lower court found the Defendants guilty of this part of the charges on this part, on the ground that: (a) the filing of a petition for bankruptcy against Nonindicted Company 2 (English name 1 omitted) holding 40.48% of the equity interest in the process of issuing capital increase with capital increase; and (b) the filing of a petition for bankruptcy with respect to Nonindicted Company 2 (English name 1 omitted) constitutes “important matters” to be published for the protection of investors;

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and evidence duly admitted, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on “material facts” and intent under Article 178(1)2 of the Capital Markets Act, or by omitting judgment or violating the principle of burden of proof distribution, the principle of court-oriented trial and the principle of direct

2. Determination as to Defendant 1’s violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) (hereinafter “Specific Economic Crimes Act”)

A. On the grounds indicated in its reasoning, the lower court found Defendant 1 guilty of this part of the charges on this part, on the ground that Defendant 1’s investment in Nonindicted Co. 3, in total, USD 750,00 in the funds of the victimized Co., Ltd. without undergoing a thorough analysis of the business prospects, possibility of loss due to management dispute, financial standing or possibility of recovery of investment, and possibility of business expansion and development, etc. of the victimized Co. 1 (hereinafter “Nonindicted Co. 3”) listed in the Hong Kong Exchange, and without undergoing the process of substantial resolution inside the victimized Co. 3, thereby causing the risk of actual property damage equivalent to the same amount by investing in the victimized Co. 3.

B. Examining the reasoning of the lower judgment in light of the relevant legal doctrine and evidence duly admitted, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, or by misapprehending the legal doctrine on the existence of an intentional breach of trust or a breach of duty or a breach of duty,

3. Determination as to Defendant 1’s violation of the Specific Economic Crimes Act (Embezzlement)

A. On the grounds indicated in its reasoning, the lower court found Defendant 1 guilty of this part of the charges on this part on the ground that Defendant 1 purchased 80,000 shares of Nonindicted Co. 6 (hereinafter “Nonindicted Co. 6”) in the name of Nonindicted Co. 4 and Nonindicted 5, and purchased 3,500 won below 5,757 won per share, which was the price initially agreed with the seller, and transferred the difference to Nonindicted Co. 1, which was 1,85,60 million won, thereby using the funds of Nonindicted Co. 1 as the acquisition price for Nonindicted Co. 1 for Defendant 1.

B. Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, misapprehending the legal doctrine on the establishment of embezzlement and property damage, omitting judgment, or violating the principle of court-oriented trial and direct examination.

4. Determination as to Defendant 1’s violation of the Financial Investment Services and Capital Markets Act with respect to the issuance of new shares by Defendant 1

A. Article 178(1)1 of the Financial Investment Services and Capital Markets Act prohibits “act of using unfair means, schemes, or tricks” in relation to trading and other transactions of financial investment instruments. Here, “unfair means, schemes, or tricks” refers to any means, schemes, or tricks deemed unfair by social norms (see, e.g., Supreme Court Decision 201Do8109, Oct. 27, 201).

B. On the grounds indicated in its reasoning, the lower court determined as follows: (a) Nonindicted Co. 7 and Nonindicted Co. 8, the actual control of Defendant 1, while offering capital increase for new shares to a third party; (b) provided that the total amount of KRW 2,932,00 of the shares of Nonindicted Co. 6 and KRW 2,932,00 for one year under the condition that the shares of Nonindicted Co. 1 were returned to each of the above corporations; (c) provided that the amount of KRW 2,932,00 for the shares of Nonindicted Co. 6 owned by Nonindicted Co. 1 was immediately recovered from the above corporations after one year; and (d) provided that each of the above corporations bears investment risk from participating in capital increase to a third party, the act of writing the appearance of each of the above corporations constitutes “the act of using unlawful means, plans, or tricks” as stipulated in Article 178(1)1 of the Financial Investment Services and Capital Markets Act, and thus, found Defendant 1 guilty of this part of the charges.

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and evidence duly admitted, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine regarding “illegal means, plans, or tricks” and “additional collection” under Article 178(1)1 of the Capital Markets Act, or by violating the principle of court-oriented trial and the principle of direct examination.

5. Determination on Defendant 1’s assertion of unreasonable sentencing

Defendant 1 asserts to the effect that the lower court’s sentence of KRW 1,00,000,00 sentenced to imprisonment for two years and six months and fine for negligence is too unreasonable. However, according to Article 383 Subparag. 4 of the Criminal Procedure Act, only in cases where death penalty, life imprisonment, or imprisonment or imprisonment without prison labor for not less than ten years is imposed, an appeal on the grounds of unfair sentencing is allowed. Thus, this part of the allegation in this case where Defendant 1 was sentenced to more minor punishment is not a legitimate ground for appeal.

6. Conclusion

Therefore, all appeals are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Ki-taik (Presiding Justice)