[1] Interpretation of penal provisions in accordance with the principle of no punishment without law

[2] In a case where the Defendant established a private futures trading site in which actual transaction tax information in the futures trading market is linked real time, and members deposited money into the Defendant’s account, stored electronic currency converted at a certain rate when they deposited money, and then operated the site in a manner that deducts fees each time they traded, and converted it into cash according to the original application rate when they were requested to exchange electronic currency, the case holding that punishment of the Defendant’s act for a violation of Article 44 subparag. 1 and Article 11 of the former Financial Investment Services and Capital Markets Act by running an unmanned financial investment business cannot be permitted in violation of the principle of no punishment without law

[1] The principle of no punishment without the law requires that a crime and punishment shall be prescribed by law in order to protect individual freedom and rights from the arbitrary exercise of the state penal authority. In light of such purport, the interpretation of the penal law shall be strict, and the interpretation of the penal law shall be excessively expanded or analogical interpretation of the meaning of the express penal law to the disadvantage of the defendant shall not be permitted

[2] In a case where: (a) the Defendant established a private futures trading site in which actual transaction tax information in the futures trading market is linked in real time; (b) the members accumulated electronic currency converted from their own account at the applicable rate; (c) members deducted commission each time they traded in electronic currency according to changes in the futures index; (d) they received a request for exchange of electronic currency; and (e) they operated a website with the structure of profit-making structure only when the members suffered profit from their trading; and (e) the members suffered loss, the case holding that the Defendant cannot be deemed to have committed an act of directly selling and selling or selling the trading of the members under Article 14 of the former Financial Investment Services and Capital Markets Act (amended by Act No. 11845, May 28, 2013; hereinafter “former Financial Investment Services and Capital Markets Act”) since it constitutes financial investment instruments that were traded by the members on the website, but the Defendant cannot be deemed to have committed an act of directly interpreting or punishing the members under Article 14 of the former Financial Investment Services and Capital Markets Act.

[1] Article 12(1) of the Constitution, Article 1(1) of the Criminal Act / [2] Article 12(1) of the Constitution, Article 1(1) of the Criminal Act, Article 3(1) and (2), Article 4(10)5, Article 5(1), Article 6(1), (2), and (3), Article 11, and Article 444 subparag. 1 of the former Financial Investment Services and Capital Markets Act (Amended by Act No. 11845, May 28, 2013)

[1] Supreme Court Decision 2011Do7725 Decided August 25, 2011 (Gong2011Ha, 1993)

Defendant

Defendant

Attorney Jeong-jin et al.

Seoul Northern District Court Decision 2011No1558 decided March 27, 2012

The judgment of the court below is reversed, and the case is remanded to the Seoul Northern District Court Panel Division.

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

A. As to the assertion of misapprehension of the legal principles as to the operation of financial investment business by unmanned persons

After finding the facts as stated in its reasoning, the lower court determined that the goods traded on the private futures trading site ○○○ (hereinafter “○○○○”) operated by the Defendant constitutes derivatives that refer to the contractual rights under each subparagraph of Article 5(1) of the same Act, which are linked to the “basic assets” under Article 4(10)5 of the former Financial Investment Services and Capital Markets Act (amended by Act No. 11845, May 28, 2013; hereinafter “former Financial Investment Services and Capital Markets Act”) that are “risk belonging to economic phenomena, etc. and that can be calculated or assessed by price, interest rate, indicator, or unit in a reasonable and appropriate manner,” and that the Defendant is engaging in financial investment business by engaging in trading derivatives on its own account.

However, we cannot accept the above determination by the court below for the following reasons.

The principle of no punishment without the law requires that a crime and punishment shall be prescribed by law in order to protect individual freedom and rights from the arbitrary exercise of the State’s penal authority. In light of such purport, the interpretation of the penal law should be strict, and an excessively expanded interpretation or analogical interpretation of the meaning of the express penal law in the direction unfavorable to the defendant is not allowed as it is against the principle of no punishment without the law (see Supreme Court Decision 2011Do7725, Aug. 25, 201

Article 11 of the former Financial Investment Services and Capital Markets Act provides that "no one shall engage in financial investment business (excluding investment advisory business and discretionary investment business) without authorization therefor under this Act." Article 444 subparagraph 1 of the same Act provides that a person who engages in financial investment business (excluding investment advisory business and discretionary investment business) without authorization therefor (including authorization for changes) in violation of Article 11 shall be punished by imprisonment with prison labor for not more than five years or by a fine not exceeding 200 million won." Article 6 (1) of the same Act provides that "an act conducted continuously or repeatedly for the purpose of earning profits" means an investment trading business, investment brokerage business, collective investment business, discretionary investment business, trust business, or any other right derived from an offer of underlying assets at a certain price or price index of the underlying assets calculated on the account of an offer, interest rate, etc." (referring to an act of trading business, regardless of whose name the offer or underwriting of such underlying assets, solicitation of such offer, and consent to such offer." Article 444 (3) of the same Act provides that "any person shall sell or subscribe to such underlying assets in the same Act."

However, according to the reasoning of the lower judgment and the record, the following circumstances are revealed.

After the Defendant opened a futures trading account in one mobile securities company, the Defendant was provided with information on actual transactions through the so-called Home Trading System (hereinafter “HTS”). The program developer purchases a private HTS program that is linked real time by a program developer and provides a screen similar to HTS of a securities company, and establishes the site so that its members can get the above HTS program. The ○○○ operation method provides the electronic currency converted into the Defendant’s account’s choice if members deposit money with the money, and the members have accumulated the electronic currency converted into the Defendant’s account. The ○○○ operation method provides information on derivatives through HTS or changes in the K20 index or European currency index (hereinafter “HTS”). The Defendant deducted commission every time when members make transactions, and if members request for exchange of electronic currency, then the Defendant would incur losses to ○○○ Securities Company’s members by converting them into cash at the original rate of application, and the reasons why the Defendant would incur losses to ○○ Securities Company’s trading terms and conditions.

Examining the above facts in light of the provisions of this Act, ○○○○ may be deemed to constitute a financial investment instrument as stipulated in the former Capital Markets Act. However, the mode of conduct of investment trading business under the former Capital Markets Act is the business of selling and purchasing, issuing and underwriting, soliciting offers, offering, and accepting offers (hereinafter “sale and purchase”). The Defendant did not allow members to engage in futures trading conducted in the real market established by the Korea Exchange while establishing and operating ○○○○○, but merely provided services for members to make investments on the basis of their futures index and exchanged as a result of such trading. As such, the Defendant cannot be deemed to have committed direct sale and purchase against its members. Furthermore, even if there is a need to punish the illegal financial investment website, such as ○○○○○, inasmuch as there is a need to punish its members on the grounds that there is a deprivation of an opportunity to realize their investment money and computer ice, it cannot be punished as a violation of the penal provision under Article 44 subparagraph 1 of the former Capital Markets Act or a penal provision under Article 14 subparagraph 1 of the same Act.

Nevertheless, solely on the grounds stated in its reasoning, the lower court readily concluded that the Defendant engaged in financial investment business by running an investment trading business without obtaining authorization from the Financial Services Commission. In so doing, the lower court erred by misapprehending the legal doctrine on the operation of financial investment business by an unmanned under Articles 44 subparag. 1 and 11 of the former Capital Markets Act. The allegation contained in the grounds of appeal on this point is with merit.

B. As to the assertion of misapprehension of legal principles as to the establishment of similar facilities and sale and purchase transaction of similar facilities

The lower court determined that the Defendant traded exchange-traded derivatives using facilities similar to the trading market for financial investment instruments, on the ground that: (a) the Defendant’s act of trading exchange-traded derivatives in ○○○○ through electronic currency with its members and settling profits and losses with its members based on the results of trading was conducted by a person other than an exchange, on the ground that he conducted trading confirmation, debt acquisition, deduction, settlement securities, settlement items, and settlement amount confirmation following the trading of exchange-traded derivatives, which are business of an exchange under Article 377 of the former Capital Markets Act;

In full view of the fact that ○○○○ established and operated by the Defendant is subject to financial investment instruments traded in the real market established by the Korea Exchange, and there is a need to protect ○○○ members, which can be deemed potential investors, the lower court’s determination is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine on the establishment of similar facilities and trading of similar facilities under Articles 44 subparag. 27 and 386(2) of the former Capital Markets Act.

2. Furthermore, we examine ex officio.

According to the records, the facts charged in the initial indictment include only the violation of the Capital Markets Act by the operation of financial investment business and the violation of the Capital Markets Act by the establishment of similar facilities. However, during the fifth trial of the court below, the prosecutor supplemented the entry of the transaction part of similar facilities in the previous indictment, and applied for the amendment of the indictment to add the facts charged as the primary facts charged, and added the opening of gambling as the preliminary facts charged, and the court below approved it.

Therefore, even if the primary facts charged in this case are found guilty, the court below reversed the judgment of the court of first instance and should have tried and judged ex officio as the case was changed by permitting the modification of the indictment. However, the court below erred by misapprehending the legal principles on the amendment of indictment. In this regard, the judgment of the court below cannot be maintained any more.

3. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee In-bok (Presiding Justice)