In order to impose penalty surcharges prescribed in Article 429(1)1 of the Financial Investment Services and Capital Markets Act on a certified public accountant, etc. who prepared an audit report on the financial statements of a stock company after conducting an external audit, and made a false statement on a material fact among them, whether the acquisitor of the securities is required to incur damages due to a false statement, etc. (negative)

Articles 125(1)3, 429(1)1, and 430(1) of the Financial Investment Services and Capital Markets Act

Financial Accounting Corporation (Law Firm Duna, Attorneys Cho Young-ho et al., Counsel for the plaintiff-appellant)

Securities and Futures Commission

Seoul High Court Decision 2012Nu36523 decided September 12, 2013

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Articles 429(1)1 and 125(1)3 of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) provide that the Financial Services Commission may impose a penalty surcharge not exceeding 3/100 of the subscription or sale price on a registration statement (or two billion won in cases where the subscription price exceeds two billion won) on a certified public accountant, appraiser, or a person specialized in credit assessment (including an organization to which the penalty surcharge is imposed) who has signed by proving that the descriptions or accompanying documents of the registration statement are true or correct, with a false description or representation of a material fact in the registration statement, a statement, prospectus, or any other document submitted under Article 119, 122, or 123, or failure to state or indicate a material fact. Article 430(1)3 of the same Act provides that the person subject to the imposition of the penalty surcharge shall be limited to cases where the person subject to the imposition of the penalty surcharge intentionally or by gross negligence committed the violation.

Therefore, in order to impose a penalty surcharge under Article 429(1)1 of the Financial Investment Services and Capital Markets Act on a certified public accountant, etc. who prepared an audit report on the financial statements of a stock company after conducting an external audit and prepared an audit report on the financial statements, which made a false statement on the material facts among them, the relevant registration statement should be submitted to the Financial Services Commission for the public offering or sale of securities with the audit report prepared by the certified public accountant, etc. as an accompanying document, but it should not be deemed that the purchaser of securities

According to the reasoning of the judgment below, the court below did not recognize the book value of the 1 and 2 convertible bonds of this case, which were not recognized as disposal losses in preparing the 20th financial statements, even though the company did not recognize the 1 and 2nd convertible bonds at the time of physical division as disposal losses. Since the plaintiff could have easily known such circumstances by confirming the financial statements of PM&W or Rub during the audit process, the ground for the 20th audit related to the 20th audit of this case is recognized, and in addition, considering the circumstances of the judgment, the 21th audit related to the 20th audit of this case is recognized, the court below determined that the whole disposition of this case against the plaintiff, including the penalty surcharge of this case, was legitimate.

In light of the above legal principles and records, the above judgment of the court below is justified as it acknowledged that the plaintiff prepared the audit report related to the 20th audit and stated false matters by gross negligence, and it is based on the premise that the registration statement was submitted to the Financial Services Commission with the above audit report attached thereto. There is no error of law such as misunderstanding of legal principles as to the utilization of audit results by other auditors, misunderstanding of legal principles as to gross negligence under Article 430 (1) of the Capital Markets Act, or

2. According to the reasoning of the lower judgment, the lower court determined that the entirety of the instant disposition against the Plaintiff, including the instant penalty surcharge, cannot be deemed as a deviation from or abuse of discretionary authority, in full view of the following: (a) the circumstance in which it was relatively apparent that the Plaintiff could have recognized the loss of the disposition at the time of transferring the first and second convertible bonds to stop; (b) the company of this case’s delisting in the KOSDAQ market; and (c) the auditor for the stop is merely an audit on the non-standing corporation.

In light of the relevant legal principles and records, the above determination by the court below is just and acceptable, and contrary to the allegations in the grounds of appeal, there were no errors of misapprehending the legal principles on deviation and abuse of discretion of the disposition imposing penalty surcharges.

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Yang Chang-soo (Presiding Justice)