[1] Meaning of “information that may have a significant impact on investors’ investment decisions” under Article 174(1) of the former Financial Investment Services and Capital Markets Act

[2] Where a person falling under any of the subparagraphs of Article 174(1) of the former Financial Investment Services and Capital Markets Act trades or makes any other transaction with a specific securities, etc. in the status of recognizing the material nonpublic information, the standard for determining whether the person made the transaction using the material nonpublic information

[1] The term “information that may have a significant impact on investors’ investment decisions” under Article 174(1) of the former Financial Investment Services and Capital Markets Act (amended by Act No. 11845, May 28, 2013) refers to the information that has a significant value in determining whether a reasonable investor purchases or continues to hold securities or to dispose of them, and that if changed, it may have a significant impact on the price of securities if it is assumed that a general investor is aware of the fact that a reasonable investor is aware of such information. No information is yet subject to the regulation of internal trading until it is disclosed with the company’s intent in the manner prescribed by Presidential Decree.

[2] In cases where a person falling under any of the subparagraphs of Article 174(1) of the former Financial Investment Services and Capital Markets Act (amended by Act No. 11845, May 28, 2013) trades or makes any other transaction with a specific securities, etc. while recognizing the material nonpublic information, such transaction may be deemed to have been made using the material nonpublic information, barring special circumstances, if it is recognized that the material nonpublic information was one of the factors that caused the transaction, even if the transaction was not effected entirely because the material nonpublic information was not made because of the material nonpublic information. However, if it is deemed that a transaction was made by any other motive regardless of the material nonpublic information, such as the fact that there was an inevitable circumstance in which the transaction was planned or it was inevitable to do so to do so to do so to the person who became aware of the material nonpublic information prior

[1] Articles 174(1) and 443(1)1 of the former Financial Investment Services and Capital Markets Act (Amended by Act No. 11845, May 28, 2013) / [2] Articles 174(1) and 443(1)1 of the former Financial Investment Services and Capital Markets Act (Amended by Act No. 11845, May 28, 2013)

[1] Supreme Court Decision 95Do467 delivered on June 29, 1995 (Gong1995Ha, 2676)

Defendant 1 and four others

Defendant 1 and one other and the prosecutor

Attorneys Park Byung-hee and 6 others

Seoul High Court Decision 2016No54 decided June 17, 2016

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. Determination on Defendant 1 and Defendant 2’s grounds of appeal

A. The part on Defendant 1’s violation of the former Financial Investment Services and Capital Markets Act due to Defendant 1’s manipulation of war prisoners of war

The lower court found Defendant 1 guilty of Defendant 1’s violation 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 rejected Defendant 1’s allegation in the grounds of appeal disputing this point, on the grounds that it could be recognized that Defendant 1’s distribution of a rumor that “the share price was included in Nonindicted 2, etc. in the course of conducting operations” could have spread to Defendant 1 directly or through Nonindicted 1.

Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court’s determination is justifiable. In so determining, the lower court did not err by failing to exhaust all necessary deliberations and exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

B. The part on Defendant 1’s violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement) concerning the receipt of ○○○○○○○○○○ Engine Limited (hereinafter “△△△△”).

The lower court found that Defendant 1’s embezzlement of KRW 1.4 billion out of KRW 1.5 billion of the funds of Nonindicted Co. 4 (hereinafter “Nonindicted Co. 4”) returned by Nonindicted Co. 3 in connection with the acquisition of △△△ shares, and rejected Defendant 1’s allegation in the grounds of appeal disputing this part of the charges against Defendant 1.

Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court’s determination is justifiable. In so determining, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence inconsistent with logical and empirical rules, or by misapprehending the legal doctrine on “a person who keeps another’s property,” which

C. The part on Defendant 1 and Defendant 2’s occupational embezzlement related to Nonindicted Co. 5

The court below found Defendant 1 and Defendant 2 guilty of embezzlement of KRW 450 million among the charges against the above Defendants, on the ground that it could be found that Defendant 1 and Defendant 2 conspired, which were returned from Nonindicted Co. 5’s funds 80 million operated by Nonindicted Co. 6, and embezzled the amount of KRW 450 million among the charges against the above Defendants, and rejected all the allegations in the grounds of appeal by the above Defendants disputing the embezzlement.

Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court’s determination is justifiable. In so determining, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, or by misapprehending the legal doctrine on “a person who keeps another’s property” or

D. The part on the violation of the former Capital Markets Act due to the manipulation by Defendants 1 and 2

(1) Article 443(1)4 of the former Financial Investment Services and Capital Markets Act provides for punishment against a person who, for the purpose of inducing another person to buy and sell listed securities or exchange-traded derivatives, misleads another person to believe that the trading of listed securities or exchange-traded derivatives is booming, or misleads another person to make a false judgment, manipulation through a disguised transaction, such as disguised and deceptive transaction under each subparagraph of Article 176(1) of the former Financial Investment Services and Capital Markets Act. In addition, Article 443(1)5 of the former Financial Investment Services and Capital Markets Act provides for punishment against a person who, for the purpose of inducing another person to trade listed securities or exchange-traded derivatives.

Meanwhile, in relation to co-offenders who jointly commit a crime, a conspiracy is not required under the law, but only a combination of intent to jointly realize a crime among two or more persons. Even if there was no process of conspiracy, if there was a combination of intent to gradually or implicitly among several persons, a conspiracy is established. If such conspiracy is acknowledged, a person who does not directly participate in the act of conspiracy is liable as a co-principal for the act of another person, and such conspiracy may be recognized in accordance with the circumstantial facts and empirical rules, even if there was no direct evidence (see Supreme Court Decision 2003Do4320, May 11, 2006, etc.).

(2) The court below found the above Defendants guilty of this part of the facts charged and rejected all of the grounds of appeal by the above Defendants.

① Defendant 1 and Defendant 3, when requesting Defendant 2 to gather shares of Nonindicted Company 4, namely, a large volume of shares, provided a name account, cash, shares, and market manipulation office, etc. necessary for the collection of shares. Defendant 2 instructed Nonindicted 7 to purchase shares, or ordered to sell shares directly, by delivering the said cash and borrowed account to Nonindicted 7. Nonindicted 7 instructed Nonindicted 8, Nonindicted 9, and Nonindicted 10, etc. to deliver the said borrowed account to Nonindicted 8, Nonindicted 9, and Nonindicted 10, and to collect the order of purchase of shares by selling shares. Nonindicted 7 conspired in sequence with Nonindicted 8, Nonindicted 9, and Nonindicted 10, etc. using the said borrowed account.

② During the process of purchasing approximately 3.84,00 shares of Nonindicted Co. 4 from June 5, 2012 to June 20, 2012, Defendant 2, Nonindicted Co. 7, etc. ordered price manipulation for the share price decline of 12,308,790 share price on a total of 721 occasions as shown in the list of crimes in attached Table 1 of the judgment of the first instance.

(3) Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court’s determination is justifiable. In so determining, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence inconsistent with logical and empirical rules, or by misapprehending the legal doctrine on co-principals and manipulation of market prices, etc., without

2. Judgment on the grounds of appeal by the prosecutor

A. The part on the violation of the former Capital Markets Act concerning the acquisition of △△△ by Defendants 1, 3, and 5

(1) “Information that may have a significant impact on investors’ investment judgment” under Article 174(1) of the former Capital Markets Act refers to information that has a significant value in determining whether a reasonable investor purchases or continues to hold or dispose of securities, and that if changed, it may have a significant impact on the price of securities if it is assumed that a general investor is generally aware of such fact. No information is yet subject to regulation on internal trading until it is disclosed with the company’s intent in a manner prescribed by Presidential Decree (see Supreme Court Decision 95Do467, Jun. 29, 195, etc.).

Meanwhile, where a person falling under any of the subparagraphs of Article 174(1) of the former Capital Markets Act trades or makes any other transaction on specific securities, etc. while recognizing the material nonpublic information, such transaction may be deemed to have been made using the material nonpublic information, barring special circumstances, if it is deemed that the transaction was one of the factors that caused the transaction of the material nonpublic information, even if the transaction was not effected entirely due to the material nonpublic information. However, if it is deemed that a transaction was made by any other motive regardless of the material nonpublic information, such as where the transaction was planned before knowing the material nonpublic information or where there was an inevitable circumstance to make the transaction to the person who became aware of the material nonpublic information, such transaction cannot be deemed

(2) On the following grounds, the lower court upheld the first instance judgment that acquitted the Defendants on the grounds that this part of the facts charged against the said Defendants did not prove any crime.

Information on the acquisition of △△ shares was embodied only with the plan to procure △△△ acquisition price as the price received by the above Defendants by using the warranty of Nonindicted Co. 4. The use of the warranty according to the plan for the procurement of △△ acquisition price is merely a performance of the contract established at the time of creation of the information called the acquisition of △△△ shares. Therefore, it is difficult to deem that the above Defendants had the information on the acquisition of △△△△ shares.

(3) Examining the reasoning of the lower judgment in light of the records, the lower court’s reasoning was partially inappropriate or insufficient, but the lower court’s conclusion that the said Defendants cannot be deemed to have used material nonpublic information in the event of a warranty is acceptable as it is based on the legal doctrine as seen earlier. In so determining, the lower court did not err by misapprehending the legal doctrine regarding the use of material nonpublic information under Article 174 of the former Capital Markets Act, or by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules,

B. The part concerning Defendant 1 and Defendant 4’s violation of the former Capital Markets Act related to attracting investment in △ Mabroom Fund (hereinafter “Mabroome Fund”).

The first instance court found Defendant 1 and Defendant 4 not guilty of this part of the facts charged on the said Defendants on the ground that it is difficult to recognize that Defendant 1 and Defendant 4 conspired with others to acquire unjust enrichment of KRW 90 million through general public offering through the investment plan on consignment. The lower court upheld the first instance judgment.

Examining the reasoning of the lower judgment in light of the record, the said judgment is justifiable. In so determining, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the relevant legal doctrine

C. The part concerning the embezzlement of Defendant 1’s victim Nonindicted 11 and Nonindicted 2

The lower court affirmed the first instance judgment that acquitted Defendant 1 of this part of the facts charged, on the ground that the evidence submitted by the prosecutor alone cannot be deemed that Defendant 1 embezzled Nonindicted 11 and Nonindicted 2’s property.

Examining the reasoning of the lower judgment in light of the record, the said judgment is justifiable. In so determining, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

3. 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 Poe-young (Presiding Justice)