The purpose of punishing a person who engages in financial investment business (excluding investment advisory business and discretionary investment business) without obtaining authorization under the former Financial Investment Services and Capital Markets Act, and the standard of determining whether such person constitutes trading of financial investment instruments under the same Act

Pursuant to the principle of no crime without the law, the interpretation of penal provisions should be strict, and it is not permitted to excessively expand or analogical interpretation of the meaning of the explicit penal provisions to the disadvantage of the defendant. Meanwhile, the punishment of a person who is engaged in financial investment business (excluding investment advisory business and discretionary investment business; hereinafter the same shall apply) without obtaining authorization from the former Financial Investment Services and Capital Markets Act (amended by Act No. 11845, May 28, 2013; hereinafter the “former Financial Investment Services and Capital Markets Act”) is aimed at protecting the general investors who engage in such business by preventing the unqualified financial investment business from falling short of the purpose of protecting the general investors, and contributing to the development of the national economy through sound development of financial investment business. Thus, whether a transaction constitutes a transaction of financial investment instruments governed by the former Financial Investment Services and Capital Markets Act should be determined with careful consideration as to whether a transaction structure can function as a net function that can avoid or spread various risks accompanying economic activities or whether such net functions can only be used for the purpose of speculation, contents and purpose of the transaction, etc.

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

Supreme Court Decision 2012Do4230 Decided November 28, 2013 (Gong2014Sang, 137)

Defendant

Defendant

Law Firm Taeyang, Attorneys Ha Young-ju et al.

Seoul Northern District Court Decision 2012No68 decided July 18, 2012

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

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

1. After finding the facts as stated in its holding, the lower court determined that the instant transaction constitutes derivatives under Article 5(1)2 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”) and the Defendant’s act constitutes a violation of the Financial Investment Services and Capital Markets Act on the ground that: (a) the customer’s payment of KRW 100,000 to the Defendant, and (b) where profits accrue from changes in the exchange rate based on the underlying asset of the United Kingdom Lbling and Australia, the right to receive profits therefrom shall be granted; (c) where certain amounts of profits accrue from the transaction are automatically terminated; and (d) where losses occur, the customer is paid after deducting 10% of the profits from the transaction automatically; and (e) where losses occur, it constitutes a contract to waive the above rights.

2. However, the lower court’s determination is difficult to accept for the following reasons.

A. Article 44 Subparag. 1 of the former Capital Markets Act provides that a person who is engaged in financial investment business (excluding investment advisory business and discretionary investment business) without authorization shall be punished by imprisonment for not more than five years or by a fine not exceeding 200 million won. Article 6(1) of the same Act provides that “financial investment business” is an act conducted continuously or repeatedly for the purpose of earning a profit, and is defined as an investment trading business, an investment brokerage business, a collective investment business, an investment advisory business, a discretionary investment business, a trust business, and a business falling under any one of the trust businesses. Article 444(2) of the same Act provides that “investment trading business” refers to the business of selling and purchasing financial investment instruments, issuing and underwriting securities, or soliciting offers, offering, and accepting offers on his/her own account regardless

Meanwhile, Article 3(1) main text of the former Capital Markets Act defines “financial investment instrument” as a right acquired by an agreement to pay money or any other thing having property value (hereinafter “money, etc.”) at the present or in the future for the purpose of earning a profit or avoiding a loss, and that there is a risk that the total amount of money, etc. paid or payable to acquire such right (excluding any amount prescribed by Presidential Decree, such as sales commissions) may exceed the total amount of money, etc. collected or recoverable from such right (including any amount prescribed by Presidential Decree, such as termination fees), and Article 3(2) of the same Act provides that “financial investment instrument under paragraph (1) shall be classified into securities and derivatives.”

Furthermore, Article 4(1) of the former Financial Investment Services and Capital Markets Act provides that “The term “securities” in this Act refers to a contract under which an investor does not assume an additional obligation to pay money in any name, other than money, etc. that the investor has paid at the time of acquisition with a national or a foreign financial investment instrument (excluding the obligation to pay that investor bears by exercising the right to establish the purchase and sale of underlying assets).” Article 5(1) of the same Act provides that “derivatives” means a contract under which an agreement is made to deliver money, etc. calculated by the price of underlying assets or underlying assets, interest rate, index, unit, or index based thereon at a specific point in the future (Article 1(1)1; Article 4(1)3 of the former Financial Investment Services and Capital Markets Act provides that “The term “derivatives” means a contract under which one of the parties agrees to deliver money, etc. calculated by the price, interest rate, indicator, unit of underlying assets or the price of underlying assets at a predetermined price during the future, or by an index based thereon (Article 30(1)4)2).

Pursuant to the principle of no punishment without the law, the interpretation of the penal law must be strict, and it is not permitted to excessively expand or analogically interpret the meaning of the explicit penal law to the disadvantage of the defendant. Meanwhile, the former Capital Markets Act punishing a person engaged in financial investment business (excluding investment advisory business and discretionary investment business; hereinafter the same shall apply) without authorization as mentioned above is aimed at protecting general investors who trade with a disqualified financial investment business entity and contributing to the development of the national economy through the sound fostering of financial investment business. Thus, whether a certain transaction constitutes a transaction of financial investment instruments governed by the former Capital Markets Act shall be determined with careful consideration of whether the transaction structure can function as a net function to raise funds or avoid or spread various risks associated with economic activities, or whether it can only be used only for speculation purposes, and whether it is necessary to protect investors as a new financial investment instrument, whether it is necessary to protect investors, especially if it is an speculative transaction, whether it is necessary to protect the investor's interests, and whether it is necessary to properly regulate the sound trade order.

B. Review of the reasoning of the lower judgment and the record reveals the following facts.

(1) The FXM transaction is a transaction unit of 100,000 won of the standard currency, which is a transaction in which the market price gains gains by using exchange rate fluctuations. The Defendant entered into a multiple purchase and sale contract with respect to “GBP (GBP)/AUD (U.D.)” under the name of the Nonindicted Company.

(2) The transaction between the Defendant and the customer (hereinafter “instant transaction”) refers to the customer’s right to purchase and sell “GBP/AUD” by accessing the Defendant’s website, and then deposited the rental fee into the account designated by the Defendant. In the event of a change in a certain range of exchange rate of exchange agreed in advance, the transaction is automatically terminated, and the transaction is to give up the rental fee already paid by the customer or to pay the Defendant more than 90% of the rental fee, either to give up or decline in the exchange rate, or to pay the said rental fee again to the customer.

(3) On the contrary, if the exchange rate of KRW 10,00 is increased or decreased by 0.1% after the start of the siren, the Defendant would pay 190,000 won to the customer (10,000 won + 90,000 won per 90% of the rental fee) and, on the contrary, the customer would not seek a refund of KRW 100,000 of the rental fee already paid if the exchange rate falls below 0.1%, and the transaction content of the instant case is that the customer would waive without seeking a refund of KRW 100,000 of the rental fee already paid.

(4) In the instant transaction, the rental fee is very low as KRW 20,00,000,000 or KRW 100,00,000, and the transaction is merely 0.1% of the exchange rate fluctuation that ends automatically, and the transaction is completed within a few hours.

(5) A written statement was prepared and submitted by an investigative agency to the effect that the instant transaction was merely a game for purchasing or selling money, upon examining the exchange rate stamp.

C. In light of the aforementioned facts and legal principles, ① the instant transaction is not only a small amount of money that the customer pays once, but also a few times of transaction. As such, given its nature, it is a structure that can only be used for speculation purposes and cannot be used as an economic means to avoid risk of exchange rate fluctuations. ② In light of the structure of the instant transaction and the intent of the participants, the said transaction appears to have no relationship with the fostering and development of financial investment business regardless of the protection of investors, ③ the amount that the Defendant would pay to the customer for the said transaction, namely, the amount that the customer would have again agreed on the “amount that the customer would have already agreed on,” but also the amount that the customer would not obtain at the time of the instant transaction is not only a certain amount of money that the customer would incur at the time of the instant transaction, but also a certain amount of money that the customer would not obtain at the time of the instant transaction, namely, the amount that the customer would not have any advantage of the option’s right to use the underlying asset at the time of the sale.

Nevertheless, on the grounds stated in its reasoning, the lower court deemed that transactions between the Defendant and the customer constitute derivatives under Article 5(1)2 of the former Capital Markets Act, and found the Defendant guilty of the facts charged. In so doing, the lower court erred by misapprehending the legal doctrine on the violation of the Capital Markets Act due to the running of a financial investment business, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds

3. Therefore, without examining the remaining grounds of appeal, 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 Kim Chang-suk (Presiding Justice)