Defendant

Defendant

Kim Jong-chul (prosecution), Kim Tae-tae (Trial)

Attorney Park Sung-han et al.

Seoul Southern District Court Decision 2013Gohap447-1 (Separation) Decided August 7, 2014

The judgment of the court below is reversed.

Defendant shall be punished by a fine of KRW 300 million.

If the defendant fails to pay the above fine, the defendant shall be confined in the old house for the period calculated by converting one million won into one day.

29,462,402 won shall be additionally collected from the defendant.

1. Scope of the judgment of this court;

All parts other than the facts in the judgment of the court are not guilty on the grounds of the judgment below, and it is deemed that the prosecutor was out of the object of public defense among the parties because the prosecutor did not file an appeal. Accordingly, this part of the judgment of the court below shall be subject to the conclusion of the judgment of the court below. Accordingly, the scope of the judgment of this court

2. Summary of the grounds for appeal;

A. misunderstanding of facts and misapprehension of legal principles

1) The information that “the Defendant, the president of the former Nonindicted Company 2, acquires bonds with warrants issued by Nonindicted Company 1 in bulk (hereinafter “instant information”) does not constitute “material nonpublic information” under Article 174(1) of the former Financial Investment Services and Capital Markets Act (amended by Act No. 11845, May 28, 2013; hereinafter “former Capital Markets Act”).

2) Since the instant information was determined and created according to the Defendant’s internal deliberation intent, it is not information related to Nonindicted Company 1’s “business, etc.” but cannot be deemed to be internal information that the Defendant knew in the process of concluding, negotiating, or implementing the contract with Nonindicted Company 1.

3) The Defendant’s large volume purchase of the shares of Nonindicted Co. 1 (hereinafter “Nonindicted Co. 1”) was confirmed that the share price at the time of the purchase was a significant low price in the middle and long-term manner under the judgment that the said company’s share price was considerably low. As such, there was no purpose to obtain profits from the market price using information related to the acquisition of bonds with warrants. Accordingly, the Defendant did not have an intention to use material nonpublic information, and thus, the Defendant’s purchase of the shares does not constitute an use of material nonpublic information.

B. Unreasonable sentencing

The punishment sentenced by the court below against the defendant (the penalty of imprisonment of one year, two years of suspended execution, 29,462,402) is too unreasonable.

3. Determination

A. Judgment on misconception of facts and misapprehension of legal principles

1) The assertion that it is not “material nonpublic information”

A) Facts of recognition

According to the evidence duly admitted and investigated by the court below, the following facts may be recognized:

(1) Nonindicted Company 1 is a KOSDAQ-listed corporation whose main business is to develop cell therapy using stem cells.

D. The share price of Nonindicted Company 1 has increased to KRW 10,850 per share on April 13, 2009 due to the development of the stem cell therapy, the conclusion of the agreement with the advisory company overseas merculation, etc. However, the following was reduced to KRW 2,00 per share on around April 13, 209: (i) the continuous timely realization of the technology developed during the period that did not lead to the business performance; (ii) the Ministry of Health and Welfare’s request for investigation on the side effect of the stem cell therapy, which is the main business of Nonindicted Company 1; (iii) the suspension of clinical trial for three months for Nonindicted Company 1; (iv) the discovery of the window dressing accounting of Nonindicted Company 1; and (v) the de-listing of the Korea Exchange, such as the resignation of Nonindicted Company 4 by the representative director; and (v) the de-listing examination of the substance of the Korea Exchange.

On the other hand, while Nonindicted Co. 1 suffered a net loss of KRW 28.2 billion in 2010, and a net loss of KRW 1.0 billion in the first quarter of 2011, Nonindicted Co. 3 exercised put options equivalent to KRW 15.0 billion in relation to the fifth bonds with warrants issued by Nonindicted Co. 1 on February 8, 2011, and Nonindicted Co. 5 did not pay KRW 6.8 billion in the balance of the stock purchase fund for Nonindicted Co. 6 to three companies, including Nonindicted Co. 5, etc., and around May 201, the Securities and Futures Commission imposed a penalty of KRW 2.0 billion in relation to the window dressing accounting.

Around June 2, 2011, the Defendant, the former president of Nonindicted Company 2, entered into a contract with each of the Nonindicted Company 1 to acquire each of the 10 billion won bonds with warrants issued by the said Company, around July 21, 2011, and around July 21, 201, the 10 billion bonds with warrants issued by the said Company.

B) the board;

According to the above facts, the Defendant continued to acquire Nonindicted Company 1’s 9 and 10 bonds with warrants on or after June 201, 201, and around July 1, 201, and Non-Indicted Company 1 suffered serious financial shortage, such as the exercise of put options to bonds with warrants by Non-Indicted Company 3, the imposition of penalty surcharge by the Securities and Futures Commission, etc., so if a new bonds with warrants do not enter into a contract, it is likely that the financial crisis, such as the arrival of the insolvent condition, might have occurred.

In such emergency situation, the information that the Defendant, who was the former president of Nonindicted Company 2, recognized as a successful manager in the market, received bonds with warrants issued by Nonindicted Company 1 in an aggregate amount of KRW 30 billion may be expected to help solve the financial difficulties of Nonindicted Company 1 through large-scale financing. As such, “information that reasonable investors think that it has an important value in making a decision on the transaction of securities if it is compared and determined by comparing and assessing the importance and likelihood of occurrence of such information.” Therefore, the instant information constitutes “material nonpublic information” as stipulated in Article 174(1) of the former Capital Markets Act, and this part of the Defendant’s assertion is without merit.

2) The assertion that there is not information “related to the business, etc.” of Nonindicted Company 1

㈎ 살피건대, 구 자본시장법 제174조 제1항 소정의 ‘업무 등과 관련된 정보’란 시장정보와 같은 외부정보를 제외한 법인의 경영과 재산 등에 관한 정보를 말하는데, 피고인의 신주인수권부사채의 인수는 약 300억 원 상당의 가용자금이 공소외 1 회사로 유입되어 위 회사의 유동성 부족을 해소하고 회사 운영 및 채무 변제에 사용할 자금의 확보가 이루어진다는 의미와 피고인이 신주인수권을 보유하고 있는 잠재적인 주주로서 장차 공소외 1 회사의 지배구조에도 영향을 미칠 수도 있다는 의미를 아울러 가진다.

From this point of view, the instant information is deemed as information on the management, property, etc. of Nonindicted Company 1, and thus, it is recognized as “information related to business, etc.” under Article 174(1) of the former Capital Markets Act. Therefore, the Defendant asserts that this part of the instant information is not punishable as material nonpublic information if the instant information does not meet the requirements of Article 174(3) of the former Capital Markets Act on the premise that it does not constitute “information related to business, etc.” (the Defendant is also asserting that it cannot be punished as material nonpublic information if it does not meet the requirements of Article

㈏ 또한, 구 자본시장법의 문언 및 입법 취지에 비추어 볼 때 제174조 제1항 이 정하는 ‘알게 된’ 정보에는 이미 생성되어 존재하는 정보를 수동적으로 수령하여 알게 된 경우뿐만 아니라 그 정보의 생성 과정에 적극적으로 관여하거나 공동으로 생성하는 과정에서 알게 된 경우도 포함된다고 해석하는 것이 타당하다. 이 사건 정보는 피고인이 신주인수권부사채 인수계약 체결을 위해 교섭하는 과정에서 계약당사자로서의 특수한 지위에 기하여 그 생성과정에 관여하여 알게 된 정보라고 보아야 하므로, 위 조항이 정하는 ‘알게 된’ 정보라 할 것이므로, 피고인의 이 부분 주장 또한 이유 없다.

3) The assertion that the act was not “use” of material nonpublic information

A) Relevant legal principles

In a stock transaction, the information serves as an important factor in determining all the terms and conditions of trading, such as whether the information was traded, trading volume, and transaction price, and if there was no other information, it constitutes an act using the information, and even if the transaction was not made entirely due to such information, it may be deemed an act using the information. In addition, if a transaction was made with the knowledge of material nonpublic information, barring special circumstances, it is reasonable to deem that the transaction was made using the information.

B) the board;

(1) In full view of the following circumstances that can be recognized by the lower court and the first instance court’s duly adopted and investigated evidence, the instant information may be deemed to have functioned as a single factor for the Defendant to purchase Nonindicted Company 1’s shares in large quantity. Therefore, the Defendant’s intentional use of material nonpublic information can be recognized.

㈎ 피고인은 공소외 1 회사의 제9차, 제10차 신주인수권부사채 인수계약의 직접적인 당사자로서 계약 체결 과정에서 이 사건 정보를 취득하여 인식하고 있는 상태에서 공소외 1 회사의 주식을 매수하였다.

㈏ 원심 및 당심이 적법하게 채택·조사한 증거들에 의하면, ① 피고인은 2011. 5. 27. 이전에는 공소외 1 회사 주식을 전혀 매수한 적이 없었던 사실, ② 피고인은 제9회 신주인수권부사채 발행 결정이 공시되기 직전에 피고인 및 공소외 7 사회복지법인의 계좌로 2011. 5. 30. 합계 98,560주, 2011. 5. 31. 합계 284,120주의 공소외 1 회사 주식을 각각 매수하였는데, 이는 각 해당일 거래량의 14.6%, 29.9%에 해당하는 사실, ③ 피고인이 제10회 신주인수권부사채 발행 결정이 공시되기 직전인 2011. 7. 20.부터 2011. 7. 21.까지 피고인 및 공소외 7 사회복지법인의 계좌로 약 60억 원 상당의 공소외 1 회사 주식을 매수하였던 사실을 각 인정할 수 있다. 이와 같이 극히 단기간 내에 이례적으로 많은 주식이 집중적으로 거래되었음에도, 피고인이 굳이 위 각 신주인수권부사채 발행 결정 공시 직전에 위와 같이 대량의 공소외 1 회사 주식을 매수할 필요가 있었던 특별한 사정을 찾아볼 수 없다.

㈐ 피고인이 공소외 1 회사의 신주인수권부사채 인수를 위한 협상 과정에서 공소외 1 회사의 자금난을 인식하였을 것임에도 위 회사의 주식을 위와 같이 대량으로 매입하였다는 것은, 비록 급격하지는 않더라도 자신의 신주인수권부사채 인수가 공소외 1 회사의 자금난 해소에 기여함으로써 주가에 긍정적인 영향을 미칠 것임을 예상했거나 적어도 이를 기대했다고 볼 수 있다. 이와 같은 전제에 선다면 피고인은 자신의 신주인수권부사채 인수사실이 공시된 후에는 위 회사의 주식을 공시 전보다 비싼 가격에 매수해야 할 가능성이 높다고 판단하였을 개연성이 크고, 이러한 고려가 피고인이 공시 전에 공소외 1 회사의 주식을 대량 매수하는 데에 하나의 요인으로 작용하였을 것으로 판단된다(피고인은 단기적인 시세차익을 노리고 위 주식을 대량 매수한 것이 아니므로 미공개중요정보 이용에 대한 고의가 없었다는 취지로 주장하나, 반드시 단기적인 시세차익 추구행위만이 미공개중요정보 이용행위가 되는 것은 아니고, 투자가치가 있는 주식이 호재성 공시로 인해 가격이 오를 것으로 예상되는 경우에 공시 전에 조금이라도 싼 가격에 미리 매수해 둔다는 인식만으로도 위 고의는 인정된다).

D. Accordingly, the Defendant may be deemed to have used material nonpublic information, such as “the massive acquisition of bonds with warrants by Non-Party 1,” and thus, the Defendant’s assertion on this part is rejected.

B. Determination on the assertion of unfair sentencing

The use of material nonpublic information not only causes unexpected damages to ordinary investors by impairing the corporate disclosure system, undermining the transparency and soundness of the corporate operation and securities trading market, but also causes incomprehion to the market and the company, thereby harming the foundation of the market economy order. In addition, the Defendant violated the obligation to report, such as holding in bulk, several times in the process of acquiring stocks. In full view of these circumstances, the Defendant’s liability for the crime is not less complicated.

However, there is no record of punishment against the Defendant for the same crime. ② The instant crime was committed by the Defendant in the course of operating the assets of a charity organization that was operated by the Defendant, and appears to have not been the purpose of obtaining short-term market profits, unlike other material nonpublic information uses. ③ The Defendant continued to hold most of the shares acquired as above and incurred a large number of losses due to the delisting of Non-Party 1, which eventually led to the crime of this case. ④ In the event that the Defendant is sentenced to imprisonment without prison labor or heavier punishment for the instant case, it would be deemed that there is no profit gained by the Defendant, and ④ When the Defendant is sentenced to imprisonment without prison labor or heavier punishment for the instant case, it would be difficult to continue to proceed with the charity business by making contributions exceeding 10 billion won after the retirement, which would be considered in light of the aforementioned circumstances

In this context, considering various circumstances such as the Defendant’s age, character and conduct, environment, motive, background, means and consequence of the crime, circumstances after the crime, and the scope of recommended sentence according to the sentencing guidelines of the Supreme Court Sentencing Committee, the sentence imposed by the lower court against the Defendant is somewhat unreasonable.

Therefore, the defendant's assertion of unfair sentencing is justified.

4. Conclusion

Therefore, the defendant's appeal is reasonable, and the judgment of the court below is reversed in accordance with Article 364 (6) of the Criminal Procedure Act, and it is again decided as follows.

The summary of the facts charged and the evidence recognized by this court are as shown in each corresponding column of the judgment below, and thus, they are quoted in accordance with Article 369 of the Criminal Procedure Act.

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

Articles 443(1)1 and 174(1)4 of the former Capital Markets Act (amended by Act No. 11845, May 28, 2013); Articles 443(1)1 and 174(1)4 of the former Capital Markets Act (amended by Act No. 11845, May 28, 201); (1) of the former Act (amended by Act No. 11845, May 28, 2013; hereinafter referred to as the “Capital Markets Act”); and (2) Articles 445 Subparag.

1. Aggravation for concurrent crimes;

Article 37 (Aggravation of Concurrent Crimes with Punishment provided for in the Financial Investment Services and Capital Markets Act concerning Use of Information on Issuance of Bonds with Warrants, which is the most severe punishment and penalty)

1. Detention in a workhouse;

Articles 70(1) and 69(2) of the former Criminal Act (wholly amended by Act No. 12575, May 14, 2014)

1. Additional collection:

Articles 10(1) and 8(1)1 of the Act on Regulation and Punishment of Criminal Proceeds Concealment

The sentence shall be determined as per the order, comprehensively taking into account the factors favorable or unfavorable to the defendant and the scope of the recommended sentence according to the sentencing guidelines set by the Sentencing Committee.

Judges Choi Jae-gu (Presiding Judge)

1) Basic crime: A) a violation of the Financial Investment Services and Capital Markets Act due to the use of material nonpublic information [type of crime]: Securities and Financial Crime Group