[1] The purpose of Article 188-4 (3) of the Securities and Exchange Act

[2] The meaning of "transaction for the purpose of fixing or stabilizing the market price of securities" under Article 188-4 (3) of the Securities and Exchange Act

[3] The method of determining whether a company’s manager had an intent to commit a breach of trust in relation to a business judgment

[4] The case holding that the act of failing to enter foreign funds in financial statements constitutes a violation of the Act on External Audit of Stock Companies

[1] In light of the legislative intent of the Securities and Exchange Act to prevent artificial manipulation of the market price by participating in a free securities market, Article 188-4(3) of the Securities and Exchange Act prohibits trading, entrustment, or consignment on the securities market or the Association open market for the purpose of fixing or stabilizing the market price of securities, but it should be exceptionally permitted under strict conditions on the period, price, subject, etc. under Article 83-8(1) of the Enforcement Decree of the Securities and Exchange Act due to the necessity of the market for smooth offering and sale of securities.

[2] The purpose of fixing or stabilizing the market price of securities is not only to fix or stabilize the current market price of securities, but also to recognize that an actor forms a certain price and sets or stabilizes the price of securities, and if an actor conducts a transaction for such purpose, the transaction shall not be made continuously and repeatedly for a certain period, but also to meet the elements of Article 188-4(3) of the Securities and Exchange Act.

[3] Generally, the intention of the crime of occupational breach of trust is established when it is combined with the perception that the person handling another's business would inflict property damage on the principal and that the intention of the person in charge of another's business or a third person's pecuniary gain is in violation of his/her duty. The subjective element of the crime of occupational breach of trust is that, in a case where the defendant denies the criminal intent by asserting that he/she committed an act at issue in his/her own interest, it shall be proved by the method of proving indirect facts that have considerable relation with the intention due to the nature of the object, and what constitutes considerable relation indirect facts should be determined by the method of reasonably determining the link of facts by the close observation or analysis power based on the normal empirical rule. Even though the management of the company has made a prudent decision with the belief that it conforms to the interests of the company based on the information collected within the extent possible without the intent of the manager to take personal benefits because such prediction or loss to the company occurs, the management judgment of the company should be taken into account in determining whether there was an intentional breach of trust with respect to the management judgment.

[4] The case holding that the act of failing to enter foreign funds in financial statements constitutes a violation of the Act on External Audit of Stock Companies

[1] Article 188-4 (3) of the Securities and Exchange Act, Article 83-8 (1) of the Enforcement Decree of the Securities and Exchange Act / [2] Article 188-4 (3) of the Securities and Exchange Act / [3] Articles 355 (2) and 356 of the Criminal Act / [4] Article 20 (2) 2 of the former Act on External Audit of Stock Companies (amended by Act No. 5497 of Jan. 8, 199

[3] Supreme Court Decision 2002Do4229 decided Jul. 22, 2004 (Gong2004Ha, 1480)

Defendant

Prosecutor

Law Firm Mau, Attorneys Yellow-ho et al.

Seoul High Court Decision 2000No1542 delivered on May 23, 2002

Of the judgment below, the violation of the Securities and Exchange Act and the Act on External Audit of Stock Companies are reversed, and this part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined.

1. As to the violation of the Securities and Exchange Act

(a) Article 188-4 (3) of the Securities and Exchange Act provides that "no person shall independently or jointly make transactions, entrust or be entrusted to the securities market or the Association brokerage market for the purpose of fixing or stabilizing the price of securities in violation of the Presidential Decree." Article 83-8 (1) of the Enforcement Decree of the Securities and Exchange Act provides that "The transactions, entrustment or consignment of such transactions, which are conducted on the securities market or the Association brokerage market for the purpose of fixing or stabilizing the price of securities under Article 188-4 (3) of the Act, shall be limited to transactions, which are conducted on the securities market or the Association brokerage market for the purpose of stabilizing or stabilizing the price of securities (hereinafter referred to as "market stabilization"), and the supply and demand of securities publicly offered during a certain period after listing or registration with the Association (hereinafter referred to as "market creation") of the securities concerned."

In light of the legislative intent of the Securities and Exchange Act to prevent the artificial manipulation of the market price by participating in the free securities market, Article 188-4 (3) of the Securities and Exchange Act prohibits trading, entrustment, or consignment conducted on the securities market or the Association open market for the purpose of fixing or stabilizing the market price of securities, but it should be exceptionally permitted under strict conditions on the period, price, subject, etc. as stipulated in Article 83-8 (1) of the Enforcement Decree of the Securities and Exchange Act due to the necessity of the market for the smooth offering and sale of securities.

In addition, the purpose of fixing or stabilizing the current market price of securities is not only to fix or stabilize the current market price of securities, but also to recognize that an actor forms a certain price and sets or stabilizes the price of securities, and if an actor has made a transaction for that purpose, the transaction shall not be made continuously and repeatedly for a certain period, but it shall meet the requirements of Article 188-4 (3) of the Securities and Exchange Act.

B. According to the records, if the defendant conspired with the non-indicted 2, etc. to meet the ratio of BIS, and upon the request of the Korea Development Bank that intends to make it possible, the defendant would make 133,198,370 shares of such non-indicted 2, and EL semiconductor chemical stock company (hereinafter "EL semiconductor") at the higher price of 3,778,920 shares of such non-indicted 3,78,920 shares of such non-indicted 13,60 shares of such non-indicted 1,60 shares of such non-indicted 10,100 shares of such non-indicted 1,200 shares of such non-indicted 30,000 shares of such non-indicted 10,000 shares of such non-indicted 1,500 shares of such non-indicted 30,000 shares of such non-indicted 1 share shares of such non-indicted 1,500,000 shares of such non-indicted 1 share shares of such non-indicted 10,0,06,000 shares of such shares of new shares.

C. Nevertheless, the court below found the defendant not guilty on the ground that the subject of punishment under Article 188-4 (3) of the Securities and Exchange Act is limited to stabilization and market creation in violation of the requirements and procedures under the Enforcement Decree, and thus, the defendant's act does not constitute such act. The judgment of the court below is erroneous in the misapprehension of Article 188-4 (3) of the Securities and Exchange Act and its Enforcement Decree, which affected the conclusion of the judgment, and the prosecutor'

2. Regarding violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes

A. Generally, the intent of the crime of occupational breach of trust is established when it is combined with the perception that the person handling another's business would inflict property damage on the principal and that the intent of the person's or a third person's pecuniary advantage is in violation of his/her duty. The subjective element of the crime of occupational breach of trust is that, in a case where the defendant denies the criminal intent by asserting that he/she committed the act at issue for his/her own interest, it shall be proved by the method of proving indirect facts that have considerable relation with the intent due to the nature of the object, and what constitutes considerable relation indirect facts should be determined by the method of reasonably determining the link of the fact by the close observation or analysis power based on the normal empirical rule. Even though the management of the company has made a prudent decision with the belief that the manager is consistent with the interests of the company on the basis of the information collected within the possible limit without the intent to take personal benefits, such prediction or loss may occur to the company. Thus, in determining whether there is an intentional breach of trust in relation to the management judgment, the characteristics of the business management should be considered.

B. The court below acknowledged the facts based on its adopted evidence, such as the defendant's act of guaranteeing the payment of bonds issued by Han-ju, Sam-U.S. Special Steel Industries Co., Ltd., Korea Steel Industry Co., Ltd., Korea Steel Industry Co., Ltd., Red Industries Co., Ltd., Hongsung Steel Industry, and Hong Steel Industries Co., Ltd., and it is difficult to find that the defendant was guilty of a crime of breach of trust on the grounds of its stated reasoning. In light of the records, the court below's fact finding and decision are just, and there are no errors in the misapprehension of legal principles as to a crime of

3. As to the violation of the Act on External Audit of Stock Companies

A. After recognizing the facts in the judgment based on the evidence adopted, the lower court determined that there was no evidence to acknowledge that the Defendant did not enter matters concerning the offshore fund in accordance with the unique characteristics of the offshore fund transaction and the customary practices at the time of the transaction, and otherwise, the Defendant had a criminal intent to prepare false financial statements and did not enter matters concerning the offshore fund.

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

(1) According to Article 2 of the corporate accounting standards at the time when the defendant prepares financial statements, the purpose of the financial accounting is to process and provide useful, and adequate information in accordance with the generally accepted accounting principles so that users of accounting information can make reasonable decisions with respect to the substance of the enterprise. In addition, in the accounting management, it is the principle that it follows the substance rather than the form, appearance, or legal form.

However, in light of the records, it is deemed that the establishment and management of a foreign investment fund issued by the Korea Industrial Securities in the course of establishing the EXE fund and the EXF Korea fund with repurchase agreement at the foreign financial institution and with the method of raising the stock acquisition fund in return for the purchase price of stocks constitutes a repurchase-back agreement or the substance of a repurchase-back agreement or the substance thereof, and the preparation and delivery of a performance contract to an overseas financial institution that has acquired the changed interest rate bonds issued by the EXF fund, one of the EXF funds operated by the Korea Industrial Securities, constitutes a contingent obligation through the offer of a guarantee, and thus, the matters related to the EX fund are matters to be stated in the financial statements in accordance with the above corporate accounting standards.

Therefore, unless there is a justifiable reason to believe that the defendant, who is well aware of the establishment and operation of the above reverse fund established and operated in Korean industrial securities, did not enter the matters related to the reverse fund in preparing financial statements, it is illegal that he did not enter it in the financial statements, and there is also a criminal intent to prepare false financial statements. The circumstance that other securities companies did not enter the matters related to the reverse fund in the financial statements, or that the Securities Supervisory Board revised the regulations related to the reverse fund after this case does not constitute a justifiable reason to justify the defendant's failure to enter the matters related to the reverse fund in the financial statements. Furthermore, according to the records, the defendant did not have any criminal intent to prepare and disclose false financial statements since it appears that the defendant knew that the current status of the reverse fund transactions prepared by the International Register of Korean Industrial Securities and the matters related to the reverse fund should be stated in the financial statements.

(2) Nevertheless, the court below determined that there is no evidence to acknowledge that the defendant had a criminal intent to commit the facts charged in violation of the Act on External Audit of Stock Companies. The court below erred by misapprehending the rules of evidence or by misapprehending the legal principles as to the criminal intent of violating the Act on External Audit of Stock Companies, thereby affecting the conclusion of the judgment. The prosecutor's ground of appeal disputing it

4. Conclusion

Therefore, the part of the judgment of the court below against the violation of the Securities and Exchange Act and the Act on External Audit of Stock Companies shall be reversed, and this part of the case shall be remanded to the court below for a new trial and determination, and the appeal by the prosecutor on the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes

Justices Ko Hyun-chul (Presiding Justice)