[1] The method to determine whether a financial investment business entity constitutes an investment solicitation under Article 9(4) of the Financial Investment Services and Capital Markets Act

[2] Meaning of “an act of providing a conclusive judgment or information that might mislead a person to believe an uncertain matter as certain” prohibited under Article 49 subparag. 2 of the Financial Investment Services and Capital Markets Act, and method of determining whether an act constitutes an act of providing a conclusive judgment, etc.

[3] Requirements for the establishment of the crime of altering a private document, and in the event there is no document under the name of another person, whether the crime of altering a private document is established (negative)

[1] Article 9(4) of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) provides that “investment solicitation” means recommending a specific investor to purchase and sell financial investment instruments, or to conclude an investment advisory contract, a discretionary investment contract, or a trust contract (excluding a managed trust contract or an investment-free trust contract).” The term “investment solicitation” refers to solicitation of an offer under the Civil Act, i.e., solicitation of an investor to make an offer. As such, an offer under the Civil Act ought to be expressed. Therefore, mere consultation or introduction and explanation of financial investment instruments, which are not accompanied by solicitation of the purchase and sale of a specific financial investment instrument, or statements after the conclusion of a contract, do not constitute investment recommendation. However, if an investor is recommended to enter into a contract in excess of the degree of mere consultation or introduction and explanation of financial investment instruments, and such introduction and explanation should be considered as an important factor to determine whether the financial investment business entity constitutes an investment recommendation, based on the trust in the relevant financial investment business entity, the relevant financial investment business entity should be determined to the extent of its impact on investment decision-making.

[2] Article 49 Subparag. 2 of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) prohibits a financial investment business entity from providing a conclusive judgment or informing information that is likely to mislead and mislead an investor to believe that an uncertain matter is certain in making an investment recommendation. Here, “providing a conclusive judgment or information that may mislead and mislead an investor to believe that an uncertain matter is certain” refers to an act of making a clear judgment or informing investors of information that could mislead the investor that the authenticity is uncertain objectively, among matters that may affect the investor’s reasonable investment decision or the value of the pertinent financial investment instrument. Furthermore, whether an act constitutes an act of providing a conclusive judgment, etc. should be determined based on an average investor with ordinary care, taking into account not only the expression used by a financial investment business entity, but also all the circumstances related to investment. As long as a financial investment business entity provided a conclusive judgment, etc. on an uncertain matter in terms of the language and text of Article 49 Subparag. 2 of the Capital Markets Act, such act does not directly affect the other party’s establishment of an investment that actually provided an investment, and thus, whether there was a reasonable ground for an uncertain investment.

[3] The crime of altering a private document is established when there is a risk of undermining public credibility by causing a person without authority to write a new probative value by altering the content of a document under the name of another person, which has already been authenticly established, to the extent that the identity is not undermined. Therefore, if there is no document under another person’s name, the crime of altering a private document may not be established.

[1] Article 9(4) of the Financial Investment Services and Capital Markets Act / [2] Article 49 subparag. 2 and Article 445 subparag. 6 of the Financial Investment Services and Capital Markets Act / [3] Article 231 of the Criminal Act

[1] [2] Constitutional Court en banc Decision 2014Hun-Ba459 Decided May 25, 2017 (Hun-Gong248, 514) / [1] Supreme Court Decision 2013Da217498 Decided January 29, 2015 (Gong2015Sang, 305) / [3] Supreme Court Decision 2010Do14587 Decided September 29, 201 (Gong201Ha, 2280)

Defendant 1 and three others

Defendant 1, Defendant 3, and Prosecutor

Law Firm, Kim & Lee LLC et al.

Seoul High Court Decision 2014No73 decided October 24, 2014

All appeals are dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to Defendant 1 and Defendant 3 Company (hereinafter “Defendant Company”)’s grounds of appeal

A. As to the assertion of unconstitutionality

The phrase “a person who commits an act falling under subparagraph 2 of Article 49 in violation of Article 49” under subparagraph 6 of Article 445 of the Financial Investment Services and Capital Markets Act, which provides for criminal punishment when a financial investment business entity provides a conclusive judgment on an uncertain matter in making an investment recommendation or provides information that is likely to mislead a certain person to believe that he/she is certain, does not violate the principle of clarity and the principle of excessive prohibition (see Constitutional Court en banc Decision 2014Hun-Ba459, May 25, 2017). Therefore, the argument that Article 49 subparag. 2, Article 445 subparag. 6, and Article 448 of the Financial Investment Services and Capital Markets Act is unconstitutional cannot be accepted.

B. As to the misapprehension of legal principles and the violation of the rules of evidence

1) Article 9(4) of the Financial Investment Services and Capital Markets Act provides, “Investment solicitation” means recommending an investor to trade or conclude an investment advisory contract, a discretionary investment contract, or a trust contract (excluding a management-type trust contract or an investment-free trust contract). An investment solicitation refers to soliciting an investor to make an offer under the Civil Act, i.e., inducing an investor to make an offer. As such, an investment must be expressed. Therefore, mere consultation that does not involve a solicitation to trade or conclude a contract of a specific financial investment instrument, or introduction and explanation of a financial investment instrument, or a statement that has already been made after the conclusion of a contract does not constitute an investment recommendation. However, if an investor continues to conclude a contract based on the trust in the relevant financial investment business entity, or took the recommendation and explanation as an important factor to determine whether to make an investment, the relevant financial investment business entity may be deemed to have engaged in an investment solicitation, and such investment solicitation should also be determined by comprehensively taking into account the following circumstances: (i) the degree of impact on investment recommendation; (ii) the degree of investment recommendation; and (iii impact on investment recommendation 25014.

Meanwhile, Article 49 Subparag. 2 of the Financial Investment Services and Capital Markets Act prohibits a financial investment business entity from providing a conclusive judgment on an uncertain matter or informing information that is likely to mislead an uncertain matter to be certain. Here, “an act of providing a conclusive judgment or misleading information that may mislead an uncertain matter to be certain” refers to an act of making a clear judgment on an investor’s rational judgment or the value of the pertinent financial investment instrument that could affect the investor’s value, or an act of informing investors of the information that could mislead the investor that the authenticity is uncertain. Furthermore, whether an act constitutes an act of providing a conclusive judgment, etc. should be determined objectively and objectively by comprehensively taking into account not only the expression used by a financial investment business entity based on an average investor with ordinary care but also the overall circumstances related to the investment. As long as a financial investment business entity conducted an act of providing a conclusive judgment on an uncertain matter, the crime of violation of Article 49 Subparag. 2 of the Financial Investment Services and Capital Markets is established, and whether an uncertain financial investment business entity provided an uncertain investment business entity’s investment loss was actually determined based on 250 grounds, etc.

2) On the grounds indicated in its reasoning, the lower court found Defendant 1 guilty of the violation of the Capital Markets Act due to unfair solicitation (excluding the part on acquittal) among the facts charged in the instant case (excluding the part on acquittal) against Defendant 1 and Defendant Company, on the ground that it can be acknowledged that Defendant 1 had either provided a conclusive judgment on an uncertain matter prohibited under Article 49 subparag. 2 of the Capital Markets Act or provided an information that could mislead Defendant 2 into being certain, in making investment recommendations to Nonindicted Incorporated Foundation 1 (hereinafter “Nonindicted Foundation 1”) and Nonindicted Incorporated Foundation 2 (hereinafter “Nonindicted Foundation 2”).

Examining the reasoning of the lower judgment in light of the aforementioned legal principles and evidence duly admitted by the first instance court and the lower court, the lower court’s aforementioned determination is justifiable. In so determining, contrary to what is alleged in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal principles and

2. As to the Prosecutor’s Grounds of Appeal

A. As to Defendant 1, Defendant 2, and Defendant Company

1) Article 178(1)2 of the Financial Investment Services and Capital Markets Act prohibits “an act of seeking money or other economic benefits by using a document containing a false description or representation of a material fact or an omission of a description or representation of a material fact necessary for preventing others from being misled” in relation to the trading and other transactions of financial investment instruments. “Important matters” refers to matters necessary for fair trade in specific securities, etc. and the protection of investors, which may have a significant impact on the property or management of the pertinent corporation, or for protecting investors, which may affect investors’ judgment on investment (see, e.g., Supreme Court Decision 2016Do6297, Aug. 29, 2016).

In addition, Article 178(2) of the Financial Investment Services and Capital Markets Act prohibits “disseminating a rumor, using a deceptive scheme, assault, or threat” for the purpose of trading or any other transaction of financial investment instruments or promoting a fluctuation in the market price. Here, the term “defensive scheme” means means means a means, scheme, trick, etc. to induce a certain act by deceiving a trading partner or an unspecified investor, and the term “defensive” means deceiving another person by means of deceptioning any objective false fact, etc. (see, e.g., Supreme Court Decision 2014Do6910, Mar. 30, 2017).

2) On the grounds indicated in its reasoning, the lower court, on the grounds indicated in its reasoning, cannot be recognized that ① Defendant 1 committed an act in violation of Article 178(1)2 of the Financial Investment Services and Capital Markets Act against Nonindicted Foundation 1, or committed a fraudulent act prohibited under Article 178(2) of the Financial Investment Services and Capital Markets Act, or Defendant 1 did not have any motive or intent to commit such act, and ② Defendant 1 cannot be deemed to have acquired money for capital increase by deceiving Nonindicted Foundation 1, had an intention to do so, or conspired with Nonindicted Company 3 (hereinafter “Nonindicted 3 Savings Bank”), and ③ Defendant 1 cannot be deemed to have committed any fraudulent unfair trading or deceptive act against Nonindicted Company 2, or had an intention to do so, and ④ Defendant 2 cannot be deemed to have committed an unfair unfair trading in collusion with Defendant 1 and other Nonindicted Foundation 1 or University 2, and it cannot be deemed that there was no intention or intention to commit an unfair trading under Article 178(1)2 and (2) of the Financial Investment Services and Capital Markets Act with respect to Defendant 1 and Defendant 2 were not guilty.

Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and evidence duly admitted by the first instance court and the lower court, the lower court’s aforementioned determination is justifiable. In so determining, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine as to the use of deceptive scheme and causation in fraud, deception in fraud, establishment requirements of accomplice, or omission of judgment in the crime of violation of Article 178(1)2 of the Capital Markets Act due to a violation of Article 178(1)2 of the said Act.

B. As to Defendant 4

1) The crime of altering a private document is established when there is a risk of undermining public credibility by causing a person without authority to write a new probative value by altering the content of a document in the name of another person, which has already been authenticly established, to the extent that the identity is not undermined (see, e.g., Supreme Court Decision 2010Do14587, Sept. 29, 201). Therefore, the crime of altering a private document cannot be established unless there is a document in the name of another person, which has already been authentic.

On the other hand, in the crime related to documents under the Criminal Act, a document means a copy by mechanical means that makes it possible to identify the original, which is an indication of the intention or concept on the material object continuously by means of letters or the virtual code capable of substituting it, or its social function and credibility, etc., and its contents can be admitted as evidence with respect to important matters in legal and social life (see, e.g., Supreme Court Decision 2004Do788, Jan. 26, 2006). The image shown on the computer monitor screen cannot be viewed as continuously fixed on the screen because it is merely shown by cause of electronic reaction whenever implementing the program to see the image file, and it does not constitute a document related to documents under the Criminal Act (see, e.g., Supreme Court Decision 2008Do1013, Apr. 10, 2008).

2) On the grounds indicated in its reasoning, the lower court affirmed the first instance judgment that acquitted Defendant 4 on the ground that there was no proof of crime regarding the alteration of private documents and the uttering of altered private documents among the facts charged in the instant case against Defendant 4, on the ground that it is difficult to view that the file for the implementation of management normalization was genuine at the time, and that it cannot be deemed as a document in relation to the crime related to documents under the Criminal Act, and thus, it cannot be deemed that Defendant 4 altered private documents, and the crime of uttering of altered private documents premised on the existence of altered private documents is not established.

Examining the reasoning of the lower judgment in light of the aforementioned legal principles and evidence duly admitted by the first instance court and the lower court, the lower court’s aforementioned determination is justifiable. 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

3. Conclusion

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

Justices Park Poe-young (Presiding Justice)