Plaintiff 1 and one other (Law Firm Jeong, Attorney Seo-won, Counsel for the plaintiff-appellant)

Defendant (Attorney Hong-sik et al., Counsel for defendant-appellant)

December 17, 2008

1. The defendant shall pay 60,200,000 won to the plaintiff 1, and 121,690,000 won to the plaintiff 2, and 20% interest per annum from December 27, 2007 to the day of complete payment.

2. The costs of the lawsuit are assessed against the defendant.

3. Paragraph 1 can be provisionally executed.

The same shall apply to the order.

1. Basic facts

A. Status of the party and the non-party company

1) The observer International Venture Capital Co., Ltd. (former trade name: observer International Venture Korea Co., Ltd.; hereinafter “Nonindicted Company”) was registered in the Association brokerage market (former KOSDAQ) around 1994 as a corporation established for the purpose of investing in, financing from, and making loans to, the founders.

2) From April 27, 1999 to April 18, 2001, the Defendant, as the United States of America, purchased 760,00 shares of the non-party company in the name of the non-party company, such as the SPS International Venture Business Co., Ltd. established in the United States on February 26, 2001, and held office as the representative director of the non-party company from April 27, 2009 to April 18, 2001. The non-party (Korean name omitted) was registered as the representative director of the non-party company in the form of the non-party company, and the non-party company was substantially managed the non-party company from April 27, 2001 to March 202, 200.

3) Plaintiff 1 acquired the shares of each non-party company from February 28, 2001 to February 27, 2002, and Plaintiff 2 from November 7, 2001 to February 26, 2002. As of March 2002, Plaintiff 1 had 70,000 shares and Plaintiff 2 held respectively.

B. Progress of the relevant criminal case

1) As the registration of investment advisory and discretionary investment business was revoked on or around March 2001 on the grounds that the Defendant appropriated 3 billion won investment advisory funds, and the MAF fund management report was forged and altered, the Defendant was required to return the investment funds from investors, but the Defendant was unable to return the normal investment funds due to useful funds and losses incurred in the course of fund management.

2) Around May 22, 2001, the Defendant offered capital increase equivalent to KRW 35.95 billion over four occasions until October 5, 2001, including the offering of capital increase in the name of a third party under the name of a third party, and then embezzled KRW 31,910,638,421 note 2) from July 30, 201 to October 26, 2001 for the purpose of returning investment funds to the investors of non-cases investment advisory. The Defendant embezzled KRW 31,910,638,421 note 2) for the purpose of voluntary use (hereinafter “instant embezzlement”).

3) Meanwhile, in the process of acquiring the management right of the non-party company under the name of the observer’s International Venture Business Co., Ltd., the Defendant announced the resolution of capital increase with a view to selling the high-price of the shares acquired through capital increase, such as the stocks of the non-party company purchased under the name of the observer’s International Venture Business Sccom, etc. and the securities account in the name of the MAF fund, etc. separately, and the shares acquired through capital increase. On May 8, 2001, the Defendant announced the non-party company’s 600,000 common shares with a face value of 5,000 won with a face value of 3 billion won for operating capital. The fact is that the foreign company participating in capital increase with the third party allocation method is not a company that did not actually establish the establishment authorization letter under the name of the Minister of Foreign Affairs or that the non-party company established under the name of the non-party company was an entity subject to capital increase by the non-party company’s new shares allocation, not an overseas investment fund.

In addition, the defendant prepared a quarterly report from February to fourth quarter of the business year 2001 (from April 1, 2001 to December 31, 2001) and submitted it to the Financial Supervisory Commission. The fact that the non-party company did not have invested shares in eight companies, such as Medton ether, in the above quarterly report, despite the fact that the non-party company did not have invested in the shares of eight companies, such as Medton ether, the defendant made a false statement as to the material facts of the above report, by stating that the non-party company invested 17.95 million won in the shares of eight companies, such as Medton ether, in the above quarterly report, and made other false statements, such as the most sale and purchase order, high-priced purchase order, false purchase order, and high-priced order.

4) The defendant was indicted on the charge of embezzlement of the funds of the non-party company, manipulation of the shares of the non-party company, failure to report the ownership and change of the shares of the non-party company, false statement in quarterly reports, and failure to report the largest shareholder change on April 17, 2008 from the Seoul Central District Court (Seoul Central District Court 2007Kahap1408). The defendant was sentenced to the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement), fabrication of private documents, uttering of the above investigation documents, violation of the Securities and Exchange Act, imprisonment of 10 years and fine of 15,00,000,000 won due to the violation of the Securities and Exchange Act, and the prosecutor and the defendant appealed and continue to be the Seoul High Court 208No

C. Delisting of stocks of the Nonparty Company

1) On March 7, 2002, the Korea Securities and Futures Exchange (hereinafter “Exchange”) requested a non-party company’s non-party company to make an inquiry on whether its business activities are normally performed on the part of the non-party company, and on November 1, 2001, with regard to the specific contents that can prove the substance of the company invested by the non-party company, etc., the non-party company requested a public announcement by setting the period on the 8th day of the same month. The non-party company’s common shares were designated as investment issues on the grounds of the non-party company’s failure to make a public announcement at the time of the public announcement of inquiry after the same day on the grounds that the public announcement of inquiry was the cause of suspending the transaction of stock certificates. The non-party company was designated as a non-party company’s non-party company

2) On June 21, 2002, the Exchange designated the non-party company's common shares as management issues on the grounds that the grounds for cancellation of registration (limited opinion on the scope of audit) occurred, and changed the period of suspension of stock transaction, which was set from March 7, 2002 to the response date for inquiry, to the expiration date of the period of cancellation of registration or the date of decision on objection.

3) Accordingly, on July 8, 2002, the KOSDAQ-listed committee decided to dismiss the objection to the revocation of the registration of the non-party company. Accordingly, the non-party company decided to revoke the registration of the non-party company on the next day from July 9, 2002 to the 30th of the same month following the completion date of the liquidation transaction. The reason for designating the management issue, “at least 50% of the capital potential,” was added in the course of the revocation procedure.

4) The shares of the non-party company were cancelled on July 2002 after the end of the year.

D. Sale of the plaintiffs' shares

1) When the suspension of stock trading was cancelled on July 9, 2002 upon the commencement of reorganization trading as above, the Plaintiffs sold shares (70,000 shares in the case of Plaintiff 1, and 141,50 shares in the case of Plaintiff 2) held on July 9, 2002 to 130 won per share.

2) The closing price of Non-Party Company’s shares on March 6, 2002, the day immediately before the suspension of trading of Non-Party Company’s shares, was KRW 1,160, and around that time, the lowest closing price was KRW 990 (the lowest amount since January 3, 2001) and the closing price on July 9, 2002 is KRW 130.

[Ground of recognition] 1, 3, 6, 8, 2-1 through 3, 4-1 through 5, 5-1 through 6, 11-1 through 34, 12-1 through 16, 13-1 through 8, 4-1 through 4, 5-5, 12-1 through 16, 13-1 through 4-5, 5-1 through 4-5, 11-1 through 4-5, 3-1 through 5, 3-1 through 4-5, 3-1 and 4-1 to the Korea Securities and Futures Exchange chief director

2. Determination as to the cause of action

A. Summary of the plaintiffs' assertion

After the Defendant made false public announcements of material facts, such as the purpose of investment in the company’s capital increase with capital increase and the company’s capital increase, to attract minority shareholders to purchase the stocks of the non-party company, and then embezzled the funds of the non-party company from July 2001 to October 2001 by paying KRW 31,910,638,421 to the non-party company’s separate investors as the purpose of return of investment funds. As such, the non-party company’s stock price has fallen rapidly due to public debate, and issued a disposition of suspension of stock purchase and sale from March 7, 2002 to the non-party company’s stocks, and eventually delisting the above stocks around July 2002. Accordingly, the low price between the stock price at the time of suspension of minimum trading was 990 won x KRW 130 won - KRW 90, KRW 1090, KRW 1090, KRW 900, KRW 1900, KRW 1090, KRW 290.

Therefore, the defendant is obligated to pay the above money and damages for delay to the plaintiffs, who are shareholders, as compensation for damages equivalent to the difference of shares under the Civil Act, by the directors' liability to a third party under Article 401 (1) of the Commercial Act (see Article 401-2 of the Commercial Act; hereinafter the same shall apply) or tort liability under the Civil Act.

B. Determination as to the establishment of liability under Article 401(1) of the Commercial Act

1) Article 401(1) of the Commercial Act provides that when a director has neglected his/her duties by bad faith or gross negligence, he/she shall be jointly and severally liable for damages to a third party. The original purpose of Article 401(1) of the Commercial Act is that the director shall be that the director shall be liable for damages to the third party, if he/she causes damage to a third party due to bad faith or gross negligence of the director when he/she causes damage to the third party due to a director's failure to perform his/her duties due to bad faith or gross negligence, even if the director breached his/her duty as a good manager upon delegation by the company, in relation to the third party, even if he/she has breached his/her duty in relation to the third party (see, e.g., Supreme Court Decision 84Meu2409, Nov. 12, 1985).

(ii)the breach of duty by bad faith or gross negligence;

As seen earlier, ① When the registration of investment advisory business and discretionary investment business was revoked, and the non-party company demanded the return of investment funds from around that time, the Defendant decided to implement non-party company’s capital increase consideration for the return of investment funds to the above investors that were not directly related to the non-party company. ② Around 2001, the time when domestic ordinary investors recognized the foreigner’s investment in a specific company as crypt information. Accordingly, the company’s investment in the business sector where high profits were expected to increase if the foreign investors made an investment in a specific company. The company’s intensive investment in the business sector is an important factor to consider the company’s stocks trading. The Defendant announced the non-party company’s 20% of its stocks and shares acquired through the non-party company’s capital increase to the non-party company’s representative director’s 30% of its total amount of investment funds and investment advisory business’s capital increase to the non-party company’s 30% of its total amount of investment funds and investment advisory business’s funds were not made in accordance with the content or trading method.

3) Whether the damage falls under Article 401(1) of the Commercial Act

A) In a case where a shareholder of a stock company suffers direct damage due to a representative director’s bad faith or gross negligence, the director and the company may claim compensation for damage pursuant to Articles 401, 389(3) and 210 of the Commercial Act. However, the representative director’s embezzlement of company’s property and reduction of company’s property, thereby causing damage to the company and thus infringing the shareholder’s economic interest, such indirect damage as losses are not included in the concept of damages under Article 401(1) of the Commercial Act (see Supreme Court Decision 91Da36093, Jan. 26, 1993). In relation to the interpretation of Article 401(1) of the Commercial Act, direct damage refers to the damage directly suffered by a third party due to the director’s breach of duty, regardless of whether the company was liable for damage. In this regard, indirect damage refers to the damage indirectly suffered by the company (no direct damage by a third party) resulting from the loss to the third party. In a case where a shareholder directly suffers from the loss or loss of stocks without justifiable reason.

B) In this case, the non-party company was a company with no special financial structure problems prior to the Defendant’s embezzlement of this case. The non-party company received limited opinions on the grounds that the non-party company did not carry out the business in a timely manner by violating the duty of care, and operated the company’s normal business activities, as seen earlier, on the grounds that the non-party company did not carry out any judgment data to audit the company’s overall account, and that the non-party company’s stocks were delisted on the grounds that the funds raised through new business, such as the Defendant’s disclosure, were not planned to invest in the non-party company for personal purposes, such as return of investment funds to investors separate from the non-party company, such as investment funds, and acquired large profits by using the financial method such as price manipulation and selling for consideration by using investment funds (Embezzlement equivalent to 160% of investment funds). It is difficult to find that the non-party company’s stocks were subject to a special loss under corporate management, which goes beyond the ordinary corporate management losses, and thus, cannot be found to be subject to de-listing.

However, although the shares of listed companies are important in the value of the share price reflecting the real assets of the company, there is its significance in that the shares can be sold easily through the open market. However, if the shares of the non-party company were to be sold and sold in the exchange, i.e., delisting, i., the eligibility to be traded in the exchange, thereby excluding the reorganization trading period, the circulation of shares as a listed company would virtually disappear. The plaintiffs, as shareholders, have no choice but to sell shares during the reorganization trading period, which is a final opportunity for compensating for losses even during the delisting process. In such a case, the plaintiffs cannot enjoy profits arising from the increase of the company's assets, which is premised on the status of shareholders of the non-party company, and can not be indirectly compensated for losses, and it is practically impossible to enforce directors' liability through a representative lawsuit premised on the status of shareholders.

As can be seen, the Defendant’s planned embezzlement in light of the size of Non-Party Company’s capital, and conduct various manipulations and false disclosures to maximize the interests that the Defendant could take in the process, thereby delistinging the company’s capital as a critical cause. In a case where there is no other means to protect shareholders, it may be the same as the case where a director applied for de-listing of shares even though there is no justifiable reason, which is a direct damage, (i.e., protection of shareholders is necessary). The damages suffered by the Plaintiffs should be deemed as damages under Article 401(1) of the Commercial Act.

4) A causal relationship

As seen earlier, the Plaintiffs, who were minority shareholders of the non-party company, have no choice but to sell the non-party company’s shares at a price significantly lower than the purchase price during the reorganization period before delisting in order to minimize damages, due to the embezzlement by the Defendant, various means conducted in the process, etc., and the non-party company’s shares were delisting on the ground that they were either limited opinions on the scope of audit and inspection, and as seen earlier, there is a proximate causal relation between the Defendant’s unlawful breach of duties and the damages suffered by the Plaintiffs.

5) Sub-committee

Therefore, barring any special circumstance, the defendant is obligated to pay the plaintiff 1 a sum of KRW 60,200,000, KRW 121,690,000 to the plaintiff 2, and delay damages for each of the above amounts.

3. Determination on the defendant's defense

The defendant knew about the embezzlement of the defendant from December 2, 200 to November 2001 through broadcasting, newspaper reporting, and the trend of decline in share price. At least the time when share sale and purchase transaction was suspended or when the defendant was arrested on May 29, 2004. As long as three years have elapsed since then, the right to claim damages has expired by prescription. Thus, considering that the director's liability for damages against the third party under Article 401 of the Commercial Act is a special liability recognized by the Commercial Act in order to protect the third party, Article 766 (1) of the Civil Act providing for the short-term extinctive prescription of general tort liability is not applicable, and the period of extinctive prescription under Article 162 (1) of the Civil Act is ten years (Supreme Court Decision 2004Da6354 Decided December 22, 2006). Thus, the defense is not accepted.

4. Conclusion

Therefore, the defendant is obligated to pay to the plaintiff 1 the amount of KRW 60,200,00, KRW 121,690,000 to the plaintiff 2 and each of the above amounts at the rate of 20% per annum under the Act on Special Cases Concerning the Promotion, etc. of Legal Proceedings from December 27, 2007 to the day of full payment as to the day after the delivery of the copy of the complaint of this case. Thus, the plaintiff's claim of this case of this case is justified and it is so decided as per Disposition.

Judges Lee Jae-chul (Presiding Judge)

1) The Defendant, while running non-rink investment advisory business, was incorporated into a MAF fund, such as the Scambae Fund Scambae Fund (Millaved Compa Company), and MaF fund located in the Malaysia, which is located in the Malaysia, and operated the investment fund.

2) In relation to the occurrence of the special loss of the non-party company as of June 11, 2002, the details of the occurrence include “the former representative director (the non-party representative director) and the presumed embezzlement loss of the former management, 30,752,630,113 won incurred, 19,20,000,000 won in capital as of the end of the immediately preceding business year, 160.1% in comparison with the capital, and 32,201,106,127 won in total assets as of the end of the immediately preceding business year.

3) The Defendant withdrawn KRW 31,910,638,421 of the Non-Party Company’s corporate funds, and among them, managed the remainder other than the investment refund in its own domestic account, and used the said funds in sequential order, and remitted the disposal price to its own U.S. account, such as Nexp Eniss and Inc. Furthermore, the Defendant managed and sold the shares of the Non-Party Company acquired through capital increase with consideration, and thereafter remitted the disposal price in the same manner as U.S. dollars 2,4260.

4) On March 1, 2002, the non-party company was designated as a non-party-certified corporation on the ground of a delay announcement of the largest shareholder change.