[1] Purport of Articles 443 and 174(1) of the former Financial Investment Services and Capital Markets Act / Whether a person after the second information recipient who received nonpublic inside information again from the first information recipient who received nonpublic inside information from the inside of the first information recipient can be punished by the said provision where a person after the second information recipient received nonpublic inside information again on a different opportunity from the first information recipient who received nonpublic inside information from the inside of the first information recipient can use the pertinent information or allow another person to use such information in connection with the

[2] In a case where the second information recipient received undisclosed inside information from the first information recipient after the first information recipient received undisclosed inside information from the inside, whether the second information recipient can be punished as an accomplice for a violation of Article 174(1) of the former Financial Investment Services and Capital Markets Act by the first information recipient (negative)

[3] In a case where the second information recipient who received nonpublic inside information from quasi-internals directly participates in the act of directly using the information at the stage of receiving the first time, whether the second information recipient can be punished as an accomplice for a violation of Article 174(1) of the former Financial Investment Services and Capital Markets Act by the first information recipient (affirmative)

[1] Articles 174(1) and 443 of the former Financial Investment Services and Capital Markets Act (Amended by Act No. 12947, Dec. 30, 2014) / [2] Articles 174(1) and 443 of the former Financial Investment Services and Capital Markets Act (Amended by Act No. 12947, Dec. 30, 2014); Article 30 of the Criminal Act / [3] Articles 174(1) and 443 of the former Financial Investment Services and Capital Markets Act (Amended by Act No. 12947, Dec. 30, 2014); Article 30 of the Criminal Act

[1] [2] [3] Supreme Court Decision 2008Do6953 Decided December 10, 2009 (Gong2010Sang, 176) / [1] Supreme Court Decision 2000Do90 Decided January 25, 2002 (Gong2002Sang, 616)

Defendant 1 and one other

Defendant 1 and Prosecutor

Law Firm Daeho et al.

Seoul Southern District Court Decision 2016No220-1 decided May 25, 2017

The guilty part of the judgment of the court below against Defendant 1 is reversed, and that part of the case is remanded to the Seoul Southern District Court Panel Division. The prosecutor's appeal on the acquittal part is dismissed.

The grounds of appeal are examined.

1. Facts charged and the issues of this case

A. 1) The facts charged against Defendant 1 related to Nonindicted Co. 1 (hereinafter “Nonindicted Co. 1”) are as follows: Defendant 1 conspired with Nonindicted Co. 2 and Nonindicted 3, and Defendant 1 purchased Nonindicted Co. 1’s shares in the name of the Defendant, etc. using the material non-indicted 1’s non-indicted 5 acquired from the accounting company through Nonindicted Co. 4.

2) The facts charged against Defendant 2 related to Nonindicted Co. 6 (hereinafter “Nonindicted Co. 6”) are that Defendant 2 conspiredd with Nonindicted Co. 3 and Nonindicted 2 in sequence, and Defendant 2 purchased the shares of Nonindicted Co. 6 in the name of the Defendant, etc. using Nonindicted Co. 6’s material nonpublic information acquired from Nonindicted Co. 8 through the accounting company Nonindicted Co. 7.

3) The facts charged against Defendant 1 related to Nonindicted Co. 9 (hereinafter “Nonindicted Co. 9”) are as follows: Defendant 1, in collusion with Nonindicted Co. 2 and Nonindicted 3 in sequence, was engaged in the sale of the said company’s futures accounts with Nonindicted Co. 2 and Nonindicted 3, using the material nonpublic information acquired from Nonindicted Co. 9 in collusion with Nonindicted Co. 4.

B. The lower court reversed the first instance judgment that found Defendant 1 guilty of the facts charged on the following grounds: (a) relevant provisions of the former Financial Investment Services and Capital Markets Act (amended by Act No. 12947, Dec. 30, 2014; hereinafter “former Financial Investment Services and Capital Markets Act”) with respect to Defendant 2’s facts charged and the facts charged against Defendant 1 only punish the first recipient of the information who received nonpublic inside information from an insider to use it or allow another person to use it in connection with the sale and purchase or other transaction of securities; and (b) the first recipient of the information who received nonpublic inside information from the first recipient of the information from the first recipient of the information to use it in a way different from the first receipt of the information, does not punish the second recipient of the information in question; and (c) the Defendants did not constitute the first recipient of the information limited to punishment under the former Financial Investment Services and Capital Markets Act; and (d) the Defendants’ evidence submitted by the prosecutor alone does not alone establish any distribution of profits or profits from the first recipient of the information.

Next, the first instance judgment convicting Defendant 1 on the part related to Nonindicted Company 9 was affirmed on the premise that Defendant 1 and Nonindicted 2 received information from Nonindicted 4, a quasi-offender, and had Nonindicted 2, etc. use the same on the premise that Defendant 1 and Nonindicted 2 were co-offenders.

Therefore, the key issue of the instant case is whether the Defendants are the primary information recipient who limited to the subject of punishment under the former Capital Markets Act (the Prosecutor’s appeal part), and whether Defendant 1 can be recognized as accomplices with the secondary information recipient (the part of Defendant 1’s appeal).

2. Determination

A. As to the Prosecutor’s Grounds of Appeal

Article 174(1) of the former Capital Markets Act only prohibits a third party from using or allowing a third party to use the undisclosed inside information in connection with the sale and purchase or other transaction of securities by an internal person. Since the second information recipient who received the undisclosed inside information from the primary information recipient does not prohibit a third party from using or allowing a third party to use such information in connection with the sale and purchase or other transaction of securities, Article 443 and Article 174(1) of the former Capital Markets Act provides that the first information recipient who received the undisclosed inside information from the internal person is punished only for using or allowing a third party to use such information in connection with the sale and purchase or other transaction of securities by a third party who received the undisclosed inside information from the primary information recipient, and that latter person after the second information recipient received the undisclosed inside information from the primary information recipient uses or allowing a third party to use such information in connection with the sale and purchase or any other transaction of securities, it is determined that the latter act does not constitute a punishment pursuant to the provision.

Article 174 (1) of the same Act is a prohibited act of Article 174 (1) of the same Act in which the first recipient of the information receives undisclosed inside information from the first recipient of the information in order to allow another person to use the information in connection with trading or other transaction of securities. It is naturally anticipated that the second recipient of the information will use the information in connection with trading or other transaction of securities after receiving undisclosed inside information from the first recipient of the information. It is naturally anticipated that the second recipient of the information will use the information in connection with trading or other transaction of securities after receiving undisclosed inside information from the first recipient under the consent of the first recipient of the information. As such, the first recipient of the information will naturally be expected to establish a crime of Article 174 (1) of the same Act in which the first recipient of the information allows another person to use undisclosed inside information from the first recipient of the information, and unless there is a provision punishing the second recipient of the information, in light of its legislative purport, the second recipient of the information cannot be punished as an accomplice of Article 170 (2) of the former Securities and Exchange Act.

In light of the aforementioned legal principles and the record, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on “a person who received material nonpublic information” under Article 174(1) of the former Capital Markets Act or “a person who received material nonpublic information from quasi-internals.”

Meanwhile, the prosecutor appealed to the effect that the lower court’s failure to recognize the conspiracy relation between Defendant 1 and Nonindicted 3 among the lower judgment’s convictions against Defendant 1 was unreasonable, but the lower judgment on this part is reversed on the grounds as delineated below, and thus, it is not separately determined on the above grounds of appeal

B. As to Defendant 1’s ground of appeal

1) Review of the reasoning of the lower judgment and the evidence duly admitted reveals the following facts.

A) Defendant 1 and Nonindicted 2 requested that Defendant 1 deliver the “information not disclosed in the quarter of April 2014” (hereinafter “information of this case”) of Nonindicted Company 9, etc. for the purpose of using it in stock and futures trading, etc. with the accountants belonging to ○○ Accounting Corporation.

B) Defendant 1 requested information of this case to Nonindicted 4 affiliated with the same accounting firm, which was engaged in the external audit of Nonindicted Company 10, a subsidiary of Nonindicted Company 9 (hereinafter “Nonindicted Company 10”). During the audit process of Nonindicted Company 10, Nonindicted 4 requested the audit team of Nonindicted Company 9 in the same accounting firm to confirm the parent company’s connection performance with the parent company and the related party, etc.

C) Defendant 1 again delivered the instant information to Nonindicted 2. After receiving the said information, Nonindicted 2 took an option to sell Nonindicted Company 9’s futures to the public prior to disclosure of the said information to the public, thereby gaining profits of KRW 7,429,163 due to the price decline in each item.

D) Nonindicted 2 informed Nonindicted 3 prior to the disclosure of the foregoing information, and Nonindicted 3 obtained 3,310,000 won benefits by taking advantage of Nonindicted 3’s gift delivery order under Nonindicted 9’s gift contract.

2) Whether Defendant 1 constitutes a person who received material nonpublic information from quasi-internals

Examining the aforementioned factual relations and the provisions on quasi-internals under the former Capital Markets Act, in light of the aforementioned facts, the ○ Accounting Firm constitutes “a person who becomes aware of material non-public information in the course of concluding and implementing the contract with the corporation” under Article 174(1)4 of the former Capital Markets Act as an auditor of Nonindicted Company 9, and Nonindicted 4, an employee of ○○ Accounting Firm, acquired the instant information in relation to his duties in the course of external audit of Nonindicted Company 10, a subsidiary of Nonindicted Company 9, thereby constituting quasi-internals under Article 174(1)5 of the same Act. Ultimately, Defendant 1 is deemed as a quasi-internal, who received information from Nonindicted 4, a quasi-internal, i.e., the first information recipient, and thus, this part of

3) Whether the instant information constitutes material nonpublic information

The instant information is a quarterly business performance of Nonindicted Company 9, a listed company, and its business performance is not only a material that affects the investment judgment of general investors, but also a reasonable investment judgment can be made by using the difference between the undisclosed business performance and the market. Thus, Defendant 1’s ground of appeal on this part is without merit.

4) Whether Defendant 1 and Nonindicted 2 are co-offenders, and the scope of Defendant 1’s liability

The first information recipient who received undisclosed inside information from one of the prohibited acts under Article 174(1) of the former Capital Markets Act shall not be punished as co-offenders of the first information recipient even though the second information recipient's act of using undisclosed inside information from the first information recipient after receiving the first information to the third person in connection with the sale and purchase or other transaction of securities constitutes a public offering, building, or aiding and abetting under the general rules of the general criminal law. However, if the second information recipient, who is a prohibited act under Article 174(1) of the same Act, was jointly involved in the act of using the information immediately after receiving the first information from the first information recipient, the second information recipient can be punished as co-offenders of the first information recipient (see Supreme Court Decision 2008Do6953, Dec. 10, 2009).

Examining the aforementioned facts in light of the legal principles as seen earlier, Defendant 1 is the first information recipient who received the instant information from Nonindicted 4, who was the first information recipient, and the second information recipient, sent it to Nonindicted 2, and Nonindicted 2 went to the futures transaction using the said information. The evidence submitted by the prosecutor alone is insufficient to recognize the circumstances such as Defendant 1’s direct futures transaction, or Defendant 1’s secondary information recipient’s joint participation in the act of directly using the said information in the transaction at the stage of receiving the first information, and it is difficult to view that there is no co-offender relationship.

Nevertheless, the lower court determined otherwise, on the premise that Defendant 1 and Nonindicted 2 are co-offenders, that Defendant 1 conspired with Nonindicted 2 in collusion with Nonindicted 2, thereby obtaining profits by using the instant information, and Nonindicted 2 allowing Nonindicted 3 to use the information, constituted Defendant 1’s act of having Nonindicted 2, an accomplice, use the information, thereby having Nonindicted 3 gain profits.

Such judgment of the court below is erroneous in the misunderstanding of legal principles as to interpretation and application of Article 174(1) of the former Capital Markets Act, such as punishment under Article 174(1) of the former Capital Markets Act and establishment of joint principal offense between the first and the second information recipient. The ground of appeal by Defendant 1 pointing this out is with merit.

3. Conclusion

Therefore, the part of the judgment of the court below against Defendant 1 is reversed, and that part of the case is remanded to the court below for a new trial and determination. The prosecutor's appeal against the acquittal portion is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench

Justices Jo Hee-de (Presiding Justice)