[1] The meaning of "material information" under Article 174 (1) of the former Financial Investment Services and Capital Markets Act, which is a provision prohibiting the use of material nonpublic information

[2] Whether certain information is subject to prohibition on the use of material nonpublic information until it is disclosed with the corporation's intent in the manner prescribed by Presidential Decree (affirmative)

[3] The requirements for using material nonpublic information and the standard for determining whether such information constitutes such requirements

[1] Articles 174(1) and 443(1)1 of the former Financial Investment Services and Capital Markets Act (Amended by Act No. 11845, May 28, 2013) / [2] Articles 174(1) and 443(1)1 of the former Financial Investment Services and Capital Markets Act (Amended by Act No. 11845, May 28, 2013) / [3] Articles 174(1) and 443(1)1 of the former Financial Investment Services and Capital Markets Act (Amended by Act No. 11845, May 28, 2013)

[1] [2] Supreme Court Decision 2016Do10313 Decided January 12, 2017 (Gong2017Sang, 422) / [1/3] Supreme Court Decision 2014Do11775 Decided January 25, 2017 (Gong2017Sang, 490) / [2] Supreme Court Decision 2000Do2827 Decided November 24, 2000 (Gong201Sang, 212), Supreme Court Decision 2004Do491 Decided May 12, 2006

Defendant

Defendant

Law Firm LLC, Attorneys Kim Nung-hwan et al.

Seoul High Court Decision 2014No2677 decided February 10, 2015

The appeal is dismissed.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. Article 174(1) of the former Financial Investment Services and Capital Markets Act (amended by Act No. 11845, May 28, 2013; hereinafter “Capital Markets Act”) provides that “a person who falls under any of the following subparagraphs” shall not use or allow another person to use any material nonpublic information related to the business, etc. of a listed corporation for the sale and purchase of specific securities, etc. or any other transaction. In addition, Articles 174(1) through 6 of the said Act provide that “The person who becomes aware of any material nonpublic information related to the business, etc. of the listed corporation or the corporation or the person who received such information therefrom.”

Here, “material information” refers to information that may have a significant impact on investors’ investment judgment, such as management, property status, and business performance of a listed company. This refers to information that has an important value in determining whether a reasonable investor purchases or continues to hold securities or is to dispose of them, and a change, if it is assumed that a general investor is generally aware of it, may have a significant impact on the price of securities (see, e.g., Supreme Court Decisions 2016Do10313, Jan. 12, 2017; 2014Do1775, Jan. 25, 2017).

B. On the grounds delineated below, the lower court determined that the information pertaining to Nonindicted Co. 1 (hereinafter “instant information”) was an important information, on the following grounds, that not only the net income at the end of 2011 was converted from black people to the enemy, but also that the net income at the end of 2011 was very large to reduce the net income and the operating income (hereinafter “instant information”).

(1) The details that sales revenue, operating profit or loss, or net profit or loss of the current business year have increased or decreased by at least 30 percent compared to the immediately preceding business year are major management matters subject to reporting obligation under Article 7 (Major Management Matters) of the former Disclosure Regulations of the Korea Exchange (amended by Regulations of the Korea Exchange, Apr. 18, 2012).

(2) As of February 13, 2012, Nonindicted Co. 1’s notice of “a change of the sales or profit structure by at least 30%” was comprised of the following: (a) as a result of the settlement of accounts for the fiscal year 2011, the net income amount was reduced by 154.7% compared to the previous fiscal year; and (b) the operating

(3) Although Nonindicted Company 1’s shares were classified as the so-called “alternative-lineme” before and after February 10, 2012, which was the time when the Defendant’s shares were sold, Nonindicted Company 1’s shares were determined by taking into account the business performance or financial flow as a whole, in addition to the results of a public opinion poll related to the fleet or press report.

(4) In light of the fact that Nonindicted Company 1’s share price fell far more considerably than the share price of other “ Park Il-young” on February 14, 2012, Nonindicted Company 1’s share price, the instant information seems to have affected Nonindicted Company 1’s share price.

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and 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, contrary to what is alleged in the grounds of appeal, by exceeding the bounds of the principle of free evaluation of evidence,

2. Regarding ground of appeal No. 2

A. Until a certain information is disclosed with the corporation’s intent in a manner prescribed by Presidential Decree, it still belongs to the information subject to the regulation on transactions that are subject to the prohibition on the use of material nonpublic information (see Supreme Court Decision 2000Do2827, Nov. 24, 200).

B. After the instant information was created around January 11, 2012 and the Defendant sold Nonindicted Company 1’s shares, the lower court acknowledged the fact that the instant information was disclosed to the general public on the same day by publicly announcing “a change of sales or profit and loss at least 30%” on February 13, 2012 after the Defendant sold Nonindicted Company 1’s shares.

C. According to the above facts, the lower court’s conclusion that the instant information constitutes undisclosed information is based on the legal doctrine as seen earlier. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on undisclosed information under Article 174

3. As to the grounds of appeal Nos. 3 and 4

A. In order to have used material nonpublic information, it should be recognized that the information affected the conclusion of the terms and conditions of transaction, such as transaction, whether to trade, and the volume of transaction, transaction, and transaction price. This should be determined by comprehensively examining the following circumstances: (a) the process in which the Defendant acquired the pertinent information and the degree of awareness of such information; (b) the impact or degree of contribution on the determination and decision on the transaction; (c) the Defendant’s economic situation or degree of contribution; (d) the time the transaction was made; (e) the type or method of the transaction; and (e) trends in the price and trading volume of securities

B. For the following reasons, the lower court determined that the Defendant knowingly used the instant information at the time of selling Nonindicted Company 1’s shares on February 10, 2012, and rejected the Defendant’s assertion that the Defendant sold the said shares in order to raise funds to participate in the capital increase with respect to new shares issued by Nonindicted Company 1, etc., which was already planned at

(1) After having left the Republic of Korea on December 22, 2011, the Defendant confirmed the receipt of e-mail from Nonindicted Co. 3’s agency affiliated with Nonindicted Co. 2, a holding company on January 11, 2012. The said e-mail was accompanied by a PEF file format on January 11, 2012. The Defendant returned to Korea on January 26, 2012 and received a report on the business status of Nonindicted Co. 1.

(2) On February 10, 2012, Nonindicted Co. 1 held a board of directors to approve the settlement of accounts every year, and on the same day, publicly announced “the change of sales or profit and loss structure by at least 30%.” As such, the Defendant, the president of Nonindicted Co. 1, was well aware of the circumstances that the Defendant, “the change of sales or profit and loss structure by at least 30%,” was imminent. The Defendant, prior to February 10, 2012, said Nonindicted Co. 3 was to prepare for sale of shares. On February 10, 2012, Nonindicted Co. 2 was sent to the office of business of Nonindicted Co. 2 and on February 10, 2012, Nonindicted Co. 3 instructed Nonindicted Co. 3 to sell shares by setting the volume of sales by account in the name of the Defendant and his family members.

(3) At the time of selling Nonindicted Company 1’s shares on February 10, 2012, it appears that Nonindicted Company 1’s capital increase was at the review stage and did not have been finalized. Moreover, even when the actual payment period for capital increase was made, there was a considerable difference between the time of selling shares and the time of selling shares as a Haman on July 10, 2012. Furthermore, the Defendant held the deposit balance amounting to KRW 5,835,184,739 at the time of February 10, 2012, and there was no need to promptly sell shares amounting to KRW 8 billion at the market price to prepare the capital increase for capital increase.

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and the evidence duly admitted, the lower court did not err in its judgment by misapprehending the legal doctrine as to whether the Defendant exceeded the bounds of the principle of free evaluation of evidence against logical and empirical rules, or was aware of the instant information, or by inconsistent reasoning.

4. Regarding ground of appeal No. 5

The argument that the lower court erred by misapprehending the legal principles as to the avoidance of loss, which is an element of a violation of the main sentence of Article 174(1) of the Capital Markets Act, or by failing to exhaust all necessary deliberations, is alleged by the Defendant only in the final appeal that the lower court did not consider it as the ground for appeal or ex officio

5. Conclusion

The appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Ki-taik (Presiding Justice)