[1] In a case where a person, who is deemed to have a position to easily access and use any material nonpublic information by concluding a contract with a juristic person, fails to meet the procedural requirements to take effect, whether such contract constitutes “a person who has entered into a contract with the juristic person concerned” under Article 188-2(1)4 of the former Securities and Exchange Act (affirmative), and whether the same applies to cases where the contract was concluded verbally (affirmative)

[2] The time to create important information, which is the object of prohibiting the use of undisclosed information under Article 188-2 of the former Securities and Exchange Act

[1] Articles 188-2 (1) 4 (see current Article 174 (1) 4 of the Financial Investment Services and Capital Markets Act) and 207-2 (1) 1 (see current Article 443 (1) 1 of the Financial Investment Services and Capital Markets Act) of the former Securities and Exchange Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635, Aug. 3, 2007) / [2] Articles 188-2 (see current Article 174 of the Financial Investment Services and Capital Markets Act) and 207-2 (1) 1 (see current Article 443 (1) 1 of the Financial Investment Services and Capital Markets Act) of the former Securities and Capital Markets Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635, Aug. 3, 2007)

[1] Supreme Court Decision 2007Do9769 Decided May 13, 2010 (Gong2010Sang, 1169) / [2] Supreme Court Decision 2008Do6219 Decided November 27, 2008 (Gong2008Ha, 1840) Supreme Court Decision 2009Do1374 Decided July 9, 2009 (Gong2009Ha, 1374), Supreme Court Decision 2008Do9623 Decided November 26, 2009 (Gong2010Sang, 65)

Defendant 1 and two others

Defendants

Law Firm Don, et al.

Seoul High Court Decision 2011No441 decided July 8, 2011

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. On the violation of the Securities and Exchange Act

(a) whether a verbal contract is included;

Article 188-2 (1) of the former Securities and Exchange Act (amended by Act No. 8635 of Aug. 3, 2007 and repealed by the Financial Investment Services and Capital Markets Act of Feb. 4, 2009; hereinafter referred to as the "former Securities and Exchange Act") provides that listed corporations or KOSDAQ-listed corporations and their executives, employees, agents (paragraph 1), major shareholders (paragraph 2), persons who have permission, authorization, instruction, supervision and other authority pursuant to Acts and subordinate statutes on the corporation (subparagraph 3), persons who have concluded a contract with the corporation (subparagraph 4), and agents, employees, or other employees of persons falling under subparagraphs 2 through 4-1 (where a person falling under subparagraphs 2 through 4 is a corporation, officers, employees, and agents thereof), who have come to know of important information in connection with the business of the corporation, and persons who have received such information from such corporation, shall not limit the use of information or access to the information in connection with the securities transaction of the corporation in question to the extent of "any other person".

Considering such legislative intent and the fact that Article 188-2(1)4 of the former Securities and Exchange Act provides that “a person who has entered into a contract with the pertinent corporation” is “a person who has entered into the contract,” and does not limit the contract to written contract, it is reasonable to deem that the person who is in a position to easily access and use undisclosed important information of the corporation by entering into the contract with the pertinent corporation constitutes “a person who has entered into the contract with the pertinent corporation,” even if the contract did not meet the procedural requirements to take effect (see Supreme Court Decision 2007Do9769, May 13, 2010), and it does not constitute “a person who has entered into the contract with the pertinent corporation,” but it does not constitute “a person who has entered into the contract,” even if

Therefore, the judgment of the court below to the same purport that the oral contract is included in the "contract" under Article 188-2 (1) 4 of the former Securities and Exchange Act is not erroneous in the misapprehension of legal principles as to the above provision or in the misapprehension of legal principle.

B. Whether a verbal contract exists

In light of the circumstances in its holding, the court below determined that it is reasonable to view that, at the latest around August 24, 2008, a verbal contract to suspend hostile merger and acquisition based on the premise of payment through management consulting service contract was made to the extent that it is legally binding between Defendant 3 and Defendant 1 and Defendant 2, a joint representative director of Nonindicted Company 2 (hereinafter “Nonindicted Company 2”), who is the joint representative director of the Nonindicted Company 1 Company (hereinafter “Nonindicted Company 1”) and Nonindicted Company 1 and the joint representative director of the Nonindicted Company 2, and that (2) the form, content, and circumstance of the shareholder agreement as of August 24, 2008; (3) the existence, form, and content of the agreement as of August 27, 2008; (4) the main owner of the public announcement; and (3) the share price change after the public announcement; and (4) the conclusion of the management consulting service contract as to the contract as of August 31, 2008; and (4) the other party’s statement.

Examining the reasoning of the lower judgment in light of the evidence duly admitted, 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.

C. Whether the case constitutes undisclosed information

As seen earlier, Article 188-2 of the former Securities and Exchange Act prohibits a person, etc. who becomes aware of material information that is not disclosed to the public in the course of performing his/her duties, from using it or allowing another person to use it. Generally, material information generated inside a corporation is not a sudden completion, but a material information generated in the process of going through various stages, and the time of creation of material information is not necessarily refers to the time when such information is completed clearly and objectively. If it is embodied to such a degree that a reasonable investor has an important value in the decision-making on the transaction of securities by comparing and assessing the importance and probability of occurrence of such information from a rational standpoint, such information has been generated (see, e.g., Supreme Court Decisions 2008Do6219, Nov. 27, 2008; 2009Do1374, Jul. 9, 2009).

For the reasons indicated in its holding, the court below determined that (1) the information of this case used by the defendants for the sale of non-indicted 1's shares constitutes "information related to business, etc." under Article 188-2 (1) of the former Securities and Exchange Act, on the grounds that (2) it is reasonable to view that the information of this case was created to the extent that it was material value in the decision-making process on the securities transaction of non-indicted 1's company from a rational standpoint in light of the following circumstances: (3) it is reasonable to view that the information of this case was created to the extent that it was realized in relation to the non-indicted 1's duty and its position in relation to the non-indicted 1's duty and its director's position in relation to the non-indicted 1's duty by forming a management consulting service agreement with the non-indicted 1's company; and (4) it is clear that the above information is about the non-indicted 1's information related to the non-indicted 1's duty and its status in relation to the non-indicted 1's duty.

Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court’s aforementioned determination is based on the relevant provisions and legal doctrine as seen above. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine regarding the prohibition of use of undisclosed information under Article 188-2(1) of the former Securities and Exchange Act,

2. As to the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation)

A. Whether the act constitutes a breach of trust

(1) The court below found that the advisory service contract of this case was concluded in order to implement the agreement around August 24, 2008, which decided to pay the price for the suspension of hostile merger and acquisition, not for the management necessity of the non-indicted 1 company, and it appears that the non-indicted 3, who was the largest shareholder of the company at the time of the conclusion of the advisory service contract of this case, could enjoy the benefit of defending the management right by suspending hostile merger and acquisition attempt of the non-indicted 2 company, while the non-indicted 1 was forced to pay money that does not need to be disbursed. In full view of the circumstances in its holding, the court below determined that the non-indicted 3 concluded the advisory service contract of this case as a director of the non-indicted 1 in violation of the duty of protecting the company's property while performing the business with the authority delegated by the representative director, and thereby, the non-indicted 1 suffered losses to pay the unnecessary service price.

Examining the reasoning of the lower judgment in light of the evidence duly admitted, 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 the act of breach of trust in violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes

B. Whether a joint principal offender was established against Defendant 1 and 2’s breach of trust

In a case where a beneficiary who benefits from the execution of a crime of breach of trust is not limited to acquiring profits by taking advantage of the act of breach of trust committed by an executor passively, but has instigated the act of breach of trust or participated in the whole process of the act of breach of trust, and thereby has actively participated in the act of breach of trust committed by the executor of the crime of breach of trust, the beneficiary becomes a joint principal offender of the crime of breach of trust (see, e.g., Supreme Court Decisions 9Do1911, Jul. 23, 199; 2006Do483, Feb. 8,

For the reasons indicated in its holding, the lower court determined that Defendant 1 and 2 are the co-principal of the crime of violating the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) on the ground that Defendant 1 and 2 actively participated in the act of breach of trust by participating in the entire process of concluding the contract, rather than that the advisory service contract of this case was concluded by Defendant 3’s unilateral and active proposal.

Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and the evidence duly admitted, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, contrary to what is alleged in the grounds of appeal, or by misapprehending the legal doctrine on joint principal offense of violating the Act

C. Whether the calculation of the amount of breach of trust is illegal

In full view of the circumstances in the holding, including the time of the conclusion of the advisory service contract of this case, the size of Nonindicted Company 1 and Nonindicted Company 2, the amount of service costs, methods of payment, the details of management consulting in fact provided, and the unfairness of the advisory service contract of this case, it is reasonable to deem that the advisory service contract of this case was concluded formally for the implementation of the above oral contract around August 24, 2008, which provided that the payment for the suspension of hostile merger and acquisition shall not be made according to the management needs of Nonindicted Company 1, but rather be made for the payment of the consideration for the suspension of hostile merger and acquisition. In such a case

Examining the reasoning of the lower judgment in light of the evidence duly admitted, 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 the calculation of the amount of breach of trust in the crime of violating the Act on the Aggravated Punishment, etc.

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 Shin Young-chul (Presiding Justice)