[1] Meaning of “a change in the market price by his/her or another person’s market manipulation,” and meaning of “an important fact in trading” and method of determining “an intention to attract trading” under Article 176(2)2 and 3 of the Financial Investment Services and Capital Markets Act / Whether a quasi-investment advisory business entity is permitted to engage in market manipulation under Article 176(2)2 and 3 of the same Act when offering advice on the investment decision on listed securities or the value of listed securities (negative)

[2] The meaning of and the method for determining "illegal means, plans, or tricks" under Article 178 (1) 1 of the Financial Investment Services and Capital Markets Act

[3] The meaning of "manner" under Article 178 (2) of the Financial Investment Services and Capital Markets Act

[4] Protection of legal interests under Articles 176 and 178 of the Financial Investment Services and Capital Markets Act / In a case where multiple acts falling under Articles 176 and 178 of the same Act are committed continuously and repeatedly for a certain period under the criminal intent of a single and continuous criminal intent for the purpose of changing the market price of listed stocks or making an illegal transaction, the number of such crimes (=general crime)

[5] The purpose of prohibiting the fraudulent unfair trading under Article 178(2) of the Financial Investment Services and Capital Markets Act, and the method of determining whether the fraudulent unfair trading is an unfair trading

[6] Purport of the joint penal provisions under Article 448 of the Financial Investment Services and Capital Markets Act, and the nature of the corporation’s liability for a violation of the legal regulations by its representative (=direct liability of a corporation) / Whether the same applies to a single-person company whose shares actually belong to one shareholder (affirmative)

[1] Article 176(2)2 and 3 of the Financial Investment Services and Capital Markets Act prohibit an act of spreading a rumor that a fluctuation in the market price is caused by his/her or another person’s market manipulation for the purpose of inducing anyone to trade listed securities or exchange-traded derivatives (Article 176(2)2 and 3 of the Financial Investment Services and Capital Markets Act (Article 176(2)2 of the said Act), and an act of making a false or misleading representation as to material facts in trading (Article 443(1)5 of the said Act). Article 443(1)5 of the said Act prescribes that a

Here, “a statement that the market price is changed by his/her or another person’s market manipulation” refers to a statement that the market price and trading volume to be formed in a free competitive market may be artificially changed by other factors not attributable to market factors according to normal supply and demand. In addition, “material fact in trading” refers to a statement that may have a significant impact on the property or management of the relevant corporation, or a matter necessary for fair trade in listed securities, etc. and protection of investors, which may affect investors’ judgment on investment.

In addition, the term “purposes to attract investors to trade” refers to the purpose of inducing investors to trade listed securities, etc. by misleading investors as to market situation or the value of listed securities through market manipulation. The aforementioned objective does not need to be the sole motive for the act. As such, even if it exists with other purposes, it does not constitute the primary cause of the act. In such a case, the degree of awareness as to the purpose does not require active intent or final recognition, but is sufficient if there is an incomplete perception. It does not entail any problem, such as whether there was actual occurrence of misunderstanding of investors, whether there was actual consequence of change in market price, and whether there was damage to others. In a case where a defendant denies the existence of a purpose, the existence of a subjective element of the crime ought to be determined by analyzing indirect facts or circumstantial facts that have considerable relevance in light of its nature. Determination on what constitutes indirect facts or circumstantial facts that can support the existence of the purpose ought to be reasonably made based on normal empirical rule.

Furthermore, even if a quasi-investment advisory business entity is a quasi-investment advisory business entity, engaging in market manipulation under Article 176(2)2 and 3 of the Financial Investment Services and Capital Markets Act while offering advice on the judgment on investment in listed securities or the value of listed securities, etc. is impermissible as it exceeds the investment advice permitted by social norms.

[2] Article 178(1)1 of the Financial Investment Services and Capital Markets Act prohibits the use of unfair means, schemes, or tricks in connection with the trading and other transactions of financial investment instruments. Article 443(1)8 of the said Act prohibits a person who commits such an act. Here, “illegal means, plans, or tricks” refers to any means, plans, or tricks deemed unfair by social norms. Whether the act is prohibited by statutes, etc., and whether the act is likely to undermine the fairness, reliability, and efficiency of the capital market by causing other investors to make a wrong judgment, thereby impairing fair competition and impairing the fairness, reliability, and efficiency of the capital market.

[3] Article 178(2) of the Financial Investment Services and Capital Markets Act prohibits the dissemination of a rumor or the use of a deceptive scheme, etc. for the purpose of trading or any other transaction of financial investment instruments, or promoting a fluctuation in the market price, and Article 443(1)9 of the said Act provides that a person who commits such an act shall be punished. The term “defensive scheme” refers to a means, scheme, or trick for the purpose of inducing a certain act by deceiving a trading partner or an unspecified investor.

[4] The legal interests protected under Articles 176 and 178 of the Financial Investment Services and Capital Markets Act, which prohibit market price manipulation and unfair trading, are the social legal interests that ensure fairness and smooth circulation of the trading of listed securities, etc., and individual property interests, such as the owner of listed securities, do not directly protect such legal interests. In a case where multiple acts falling under Articles 176 and 178 of the same Act are repeated continuously for a certain period under the single and continuous criminal intent for the purpose of changing market price of listed securities and unfair trading, the inclusive crime of violating the prohibition of market price manipulation and unfair trading, etc. as stipulated under Articles 176 and 178 of the same Act is established.

[5] The purpose of prohibiting unfair trading under Article 178(2) of the Financial Investment Services and Capital Markets Act is to protect individual investors' interests participating in the trading of listed securities, etc. and protect investors' trust in the general securities market, thereby contributing to the development of the national economy. Therefore, whether the purpose of trading listed securities, such as the trading of listed securities, or whether the statement is a deceptive scheme, shall be determined in accordance with objective criteria by comprehensively and comprehensively taking into account the following: (a) the offender’s status; (b) the motive and background leading up to making a specific statement or indication; (c) the motive and leading up to such statement; (d) whether the statement was made in good faith on the basis of a reasonable ground when the transaction partner or investors are predicted or prospects for the future financial status or business performance; (e) whether there is a risk that the statement may mislead or mislead the other party or investors; and (e) whether the perpetrator’s actions and actions after making the statement after making the statement; and (e) whether the act was conducted before and after the trading.

[6] Article 448 of the Financial Investment Services and Capital Markets Act provides a joint penal provision where a representative, etc. of a corporation commits an offense falling under any of Articles 443 through 446 in connection with the corporation’s business, not only shall the offender be punished, but also the corporation be punished by a fine under the relevant provisions. The purport of the joint penal provision under the Financial Investment Services and Capital Markets Act is that a corporation acts through an institution, so long as a corporation appoints its representative, legal effect and benefits arising from its act should be attributed to the corporation, and that a corporation is liable for the criminal act of its representative. The responsibility of a corporation for a violation of the laws and regulations of its representative is the direct responsibility of the corporation for an act that may be assessed as a violation of its own laws and regulations. In the case of a single-person corporation whose shares belong to a single-person stockholder, the company and the shareholder are separate persons, and since the property of a single-person company cannot be deemed as the ownership of one stockholder immediately, it cannot be viewed as different for the liability under

[1] Articles 176(2)2 and 176(2)3 and 443(1)5 of the Financial Investment Services and Capital Markets Act / [2] Articles 178(1)1 and 443(1)8 of the Financial Investment Services and Capital Markets Act / [3] Articles 178(2) and 443(1)9 of the Financial Investment Services and Capital Markets Act / [4] Article 37 of the Criminal Act; Articles 176, 178, and 443 of the Financial Investment Services and Capital Markets Act / [5] Articles 178(2) and 443(1)9 of the Financial Investment Services and Capital Markets Act / [6] Articles 443 and 448 of the Financial Investment Services and Capital Markets Act

[1] Supreme Court en banc Decision 2009Do1374 Decided July 9, 2009 (Gong2009Ha, 1374), Supreme Court Decision 2007Do9051 Decided June 24, 2010 (Gong2010Ha, 1507) / [4] Supreme Court Decision 201Do8109 Decided October 27, 201 (Gong201Ha, 2504) / [2] Supreme Court Decision 2013Do8700 Decided January 16, 2014 / [3] Supreme Court Decision 2009Do6410 Decided December 9, 201 (Gong2011Sang, 156) / [3] Supreme Court Decision 2006Do6410 Decided March 26, 2015] Supreme Court Decision 209Do6410 decided March 36, 2016

Defendant 1 and one other

Defendants

Law Firm Cho & Lee et al.

Seoul High Court Decision 2012No4392 decided May 24, 2013

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 the ground of appeal on violation of market price manipulation prohibition

A. Article 176(2)2 and 3 of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) prohibits an act of spreading a rumor that a fluctuation in the market price is caused by his/her or another person’s market manipulation for the purpose of inducing anyone to trade listed securities or exchange-traded derivatives (Article 176(2)2 and 3 of the said Act (hereinafter “Capital Markets Act”), and an act of making a false or misleading representation as to material facts in trading (Article 176(2)2 and 443(1)5 of the said Act (Article 443(1)5).

Here, “a statement that the market price is changed by his/her or another person’s market manipulation” refers to a statement that the market price and trading volume to be formed in a free competitive market according to normal supply and demand can be artificially changed due to other factors not attributable to market factors. In addition, the term “material fact in trading” refers to a statement that may have a significant impact on the property or management of the relevant corporation, or a matter necessary for fair trade in listed securities, etc. and investor protection, which may affect investors’ judgment on investment (see, e.g., Supreme Court Decision 2009Do1374, Jul. 9, 2009).

In addition, the term “purposes to attract investors to trade” refers to the purpose of inducing investors to trade listed securities, etc. by misleading investors as to market situation or the value of listed securities through market manipulation. The aforementioned objective is not required to be the sole motive of the act. Thus, even if it exists with other purposes, it does not constitute the primary cause of the act. In such a case, the degree of awareness as to the purpose does not require active intent or final recognition, but is sufficient if there is dolusence. Whether there was actual consequence of the change of market price or actual consequence of the change of market price, and whether there was damage to others, etc. (see, e.g., Supreme Court Decision 2007Do9051, Jun. 24, 2010). In a case where a defendant denies the existence of the purpose, the existence of the subjective element of the act ought to be determined by analyzing indirect facts or circumstantial facts with considerable relevance in light of its nature, and the existence of such subjective element ought to be determined based on indirect facts or circumstantial records (see, e.g., Supreme Court Decision 2007Do197.

Furthermore, even if a quasi-investment advisory business entity is a quasi-investment advisory business entity, engaging in market manipulation under Article 176(2)2 and 3 while offering advice on the judgment on investment in listed securities or the value of listed securities, etc. is not permissible as it exceeds the investment advice permitted by social norms.

B. The lower court determined as follows.

1) Defendant 2 Co., Ltd. (hereinafter “Defendant Co., Ltd.”) and its representative director, who reported quasi-investment advisory business, purchased a large quantity of shares of Nonindicted Co., Ltd. (hereinafter “Nonindicted Co. 1”) in the name of the Defendants from August 14, 2009 to October 7, 2009.

2) From October 23, 2009 to April 16, 2010, Defendant 1 continuously posted a notice on the Internet display bulletin board or portal site, etc., on the following purport: (a) Defendant 1 recommended members of Nonindicted Party 2’s Internet 2-related research institute to purchase the company’s own price so as to make it difficult to purchase the company’s own price, etc.; (b) Defendant 1, who purchased only shares and sold the company’s shares, may either rise in an unconditional price, thereby leading up to KRW 30,00; or (c) “Korea’s share ratio reaches KRW 26.91%, and the amount of investment reaches KRW 30,00,000; and (d) in fact, Nonindicted Party 1’s large shareholder is able to control the share price of Nonindicted Party 1’s company 1, and thus continue to sell the quantity.”

3) In addition, even though there was no intention to participate in the management of Nonindicted Company 1 or no specific plan to realize it, Defendant 1 emphasized as if it was close to the representative director of Nonindicted Company 1, who is merely a university attached to the university, and continuously posted on behalf of the members of Nonindicted Company 2-Research Institute in the same manner such as continuing to manage factors affecting the share price by participating in the management of Nonindicted Company 1 and in the management of Nonindicted Company 1

4) The share price of Nonindicted Company 1’s shares was KRW 1,505 as of October 23, 2009, and the rise in KRW 9,300 on January 5, 201.

5) Such an act goes beyond merely recommending investment in promising issues through general investment advisory services. Defendant 1, the representative director of the Defendant Company, distributed a rumor that the market price of Nonindicted Company 1’s stocks fluctuates by his market manipulation, and made a false representation or misunderstanding as to management participation, which is an important fact in the trading of Nonindicted Company 1’s stocks, with an intention to attract Defendant 1 to trade Nonindicted Company 1’s stocks.

C. In light of the aforementioned legal principles and evidence duly admitted, 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 bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on each interpretation and application of Article 176(2)2 and 3 of the Capital Markets Act.

2. As to the ground of appeal on the violation of prohibition on unfair trading, etc.

A. Article 178(1)1 of the Financial Investment Services and Capital Markets Act prohibits an act of using an unfair means, scheme, or trick in connection with trading or any other transaction of financial investment instruments, and Article 443(1)8 of the said Act provides that a person who commits such an act shall be punished. Here, “unfair means, scheme, or trick” refers to any means, scheme, or trick deemed unfair by social norms (see, e.g., Supreme Court Decision 2011Do8109, Oct. 27, 201). Whether a certain act is denied ought to take into account (i) whether the act is prohibited by statutes; (ii) whether another investor’s act is likely to undermine fair competition by causing another investor to make a wrong judgment; and (iii) thereby impairing the fairness, reliability, and efficiency of the capital market (see, e.g., Supreme Court Decision 2013Do8700, Jan. 16, 2014).

In addition, Article 178(2) of the Financial Investment Services and Capital Markets Act prohibits the dissemination of rumors and the use of deceptive schemes with intent to trade or make any other transaction in financial investment instruments or to cause a fluctuation in the market price. Article 443(1)9 of the said Act provides that a person who commits the said act shall be punished. The term “defensive scheme” refers to a means, scheme, trick, etc. for the purpose of inducing a certain act by deceiving trading partner or an unspecified investor (see Supreme Court Decision 2009Do6411, Dec. 9, 2010, etc.).

The legal interests protected under Articles 176 and 178 of the Capital Markets Act, which prohibit market price manipulation and unfair trading, are the social legal interests that ensure the fairness and smooth circulation of the trading of listed securities, and individual property interests of each owner, etc., including listed securities, do not directly protect such legal interests. In a case where multiple acts falling under Articles 176 and 178 of the same Act are repeated for a certain period under the single and continuous criminal intent for the purpose of causing a fluctuation in the market price of listed securities, unfair trading, etc., a single comprehensive offense is established (see, e.g., Supreme Court Decision 2011Do8109, Oct. 27, 201).

In addition, prohibiting unfair trading under the Financial Investment Services and Capital Markets Act has an impact on a large number of investors on fraudulent illegal trading of listed securities, etc., and can make the entire securities market unsound. As such, protecting individual interests of investors participating in the trading of listed securities, etc., and protecting investors’ trust in the general securities market, thereby contributing to the development of the national economy. Therefore, whether the securities market is an object of trading, such as trading of listed securities, or a deceptive scheme, shall be determined in accordance with objective criteria by comprehensively and comprehensively taking into account the status of the offender, the motive and background leading up to the offender’s specific statement or indication, whether the statement, etc. was made faithfully on the basis of a reasonable ground, whether the statement, etc. is likely to mislead or mislead the trading partner or unspecified investors, whether the act committed after the offender made the statement, etc., the trend of the share price, and all the circumstances before and after the act (see, e.g., Supreme Court Decision 200Do6335, Mar. 10, 2011).

B. The lower court determined as follows.

1) As seen earlier, Defendant 1 committed an act of market manipulation to the members of Nonindicted 2-Research Institute with the aim of inducing the sale and purchase of Nonindicted 1’s shares.

2) Although Defendant 1 anticipated the decline in the share price of Nonindicted Company 1, Defendant 1 emphasized that he/she continued to hold Nonindicted Company 1’s shares until 2012 by posting a notice on his/her own sale and recommendation related to purchase, on the other hand, Defendant 1 and Nonindicted Company 1’s shares owned by himself/herself were sold and commercialized most of them from April 28, 2010 to July 2, 2010.

3) The share price of Nonindicted Company 1’s shares increased by up to 10,450 won on January 6, 2010, but became KRW 5,080 on March 30, 2010, and KRW 3,385 on July 30, 2010.

4) Such an act by Defendant 1 is not only using an unfair means, scheme, or trick in connection with the sale and purchase of Nonindicted Company 1’s shares, but also constitutes the use of a deceptive scheme against the members of Nonindicted Company 2’s research institute with the aim of selling and buying Nonindicted Company 1’s shares. They constitute a single comprehensive crime.

C. In light of the aforementioned legal principles and evidence duly admitted, 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 bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on each interpretation and application of Article 178(1)1 and (2) of the Capital Markets Act.

3. As to the ground of appeal on the violation of prohibition of double punishment

The assertion that “in addition to the criminal punishment against Defendant 1, the imposition of a fine under the joint penal provisions against Defendant 1, a de facto single-person company, constitutes double punishment,” is unlawful. It is alleged that Defendant Company’s grounds for appeal are either the grounds for appeal or the lower court’s judgment did not make it the subject of judgment ex officio, and thus, it cannot be a legitimate ground for appeal.

Furthermore, for the following reasons, the lower court separately determined and punished the Defendants’ respective acts, as otherwise alleged in the grounds of appeal, did not err by misapprehending the legal doctrine as to prohibition of double punishment. Article 448 of the Capital Markets Act provides, “If a representative, etc. of a corporation commits a violation falling under any of Articles 443 through 446 in connection with the business of the corporation, not only shall such violator be punished, but also the corporation shall be punished by a fine under the relevant provisions. The purport of the aforementioned joint penal provision is that, as long as a corporation appoints a representative, the legal effect and benefits arising from such act should be attributed to the corporation. As such, insofar as the corporation appoints a representative, the corporation’s act should be deemed as a violation of its laws and regulations, and the corporation’s responsibility for the violation of the laws and regulations is the corporation’s direct responsibility for the act that may be assessed as a violation of its own laws and regulations (see, e.g., Constitutional Court en banc Decision 2009Hun-Ga25, Jul. 29, 2010).

4. 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 Jung-hwa (Presiding Justice)