Do Profits Gained from a Capital Markets Violation Include Both Realised and Unrealised Profits? Calculating Unrealised Profits and Determining the Share Price at the Point of Full Reflection

Starting Point of the Case and the Core Legal Question

Supreme Court Judgment 2021Do1143 rendered on September 30, 2021 (Violation of the Financial Investment Services and Capital Markets Act) squarely addresses the following question: do profits gained from the use of favourable material non-public information include unrealised profits, and if so, how are they to be calculated?

The Supreme Court's core conclusion may be summarised as follows. The Supreme Court held that, absent special circumstances, profits causally connected to the violation include both realised and unrealised profits. It further held that unrealised profits are calculated by multiplying the difference between the share price at the point at which the effect has been fully reflected in the share price and the actual purchase price per share by the number of shares held. The operative part reads, "The appeal is dismissed.", and the judgment's mode of reasoning is a holistic assessment (following existing precedent).

This analysis follows the structure of the issues and the standards of judgment that appear in the published judgment, and examines why the Supreme Court upheld the conclusion of the court below.

Sources for this section: Supreme Court Judgment 2021Do1143 rendered on September 30, 2021 — official text of the judgment, National Law Information Center

The Structure of the Issues Set by the Holdings and Referenced Provisions

The framework of the holdings as set out in the judgment is as follows: matters to be borne in mind when calculating the value of profits gained from the violation for the purposes of applying the proviso to Article 443 (1) and Article 443 (2) of the former Financial Investment Services and Capital Markets Act / whether 'profits gained from the violation' include both 'realised profits' and 'unrealised profits' (affirmative), and the method of calculating 'unrealised profits' in that case / the method of determining 'the share price at the point at which the effect of disclosure of the information has been fully reflected in the share price' for this purpose.

The referenced provisions to be read together in this case are Articles 174 and 443 (1) and (2) of the former Financial Investment Services and Capital Markets Act (before being amended by Act No. 15549 on March 27, 2018). The first step is to separate, among the constituent elements or the requirements for the arising of a right laid down by the wording of the provisions, how far the domain of statutory interpretation extends and where the domain of case-specific fact-finding begins.

In relation to prior precedent, this judgment sits in the position of following existing precedent. Read alongside the referenced precedent (Supreme Court Judgment 2018Do8438 rendered on October 12, 2018 (Gong2018Ha, 2149)), it shows how the Court, while maintaining the outer bounds of the existing legal principle, rearranged the factual elements of the specific case.

Sources for this section: Supreme Court Judgment 2021Do1143 rendered on September 30, 2021 — official text of the judgment, National Law Information Center

Analysis of the Supreme Court's Summary of Judgment and Key Holding Sentences

The core of the summary of judgment set out by the Supreme Court is as follows. The former Financial Investment Services and Capital Markets Act (before being amended by Act No. 15549 on March 27, 2018; hereinafter the 'former Capital Markets Act') prohibits the use of material non-public information (Article 174) and imposes criminal punishment for violations thereof (Article 443). Because the former Capital Markets Act makes 'profits gained or losses avoided through the violation' part of the constituent elements of the offence and aggravates the punishment according to their value (the proviso to Article 443 (1) and Article 443 (2)), in applying these provisions care must be taken to calculate the value of profits gained from the violation strictly and cautiously, so as not to undermine the principle of proportionality between offence and punishment, which requires an appropriate balance between crime and penalty, or the principle of culpability, which requires that punishment be based on, and proportionate to, culpability. Since 'profits gained from the violation' means all profits obtained by the actor that are causally connected to the violation, absent special circumstances they include both the profits already generated through actual transactions carried out after the use of favourable material non-public information up to the point at which the effect of disclosure of the information has been fully reflected in the share price (hereinafter 'realised profits') and the valuation gains on the shares that were the object of the use of material non-public information and were still held at that point (hereinafter 'unrealised profits'). In this case, 'unrealised profits' are calculated as the amount obtained by multiplying the difference between the share price at the point at which the effect of disclosure of the information has been fully reflected in the share price and the actual purchase price per share by the number of shares that were the object of the use of material non-public information and were held at that time. This applies equally where the shares that were the object of the use of material non-public information and were held at the point at which the effect of disclosure of the information was fully reflected in the share price were actually sold after that point. Here, 'the share price at the point at which the effect of disclosure of the information has been fully reflected in the share price' must be determined objectively, strictly and cautiously, taking into comprehensive account various circumstances such as the trends in share price and trading volume after disclosure of the information and the period over which those trends continued. Ordinarily, the share price at the point at which a share price that had been rising after the disclosure of favourable information stops rising or turns downward may be regarded as 'the share price at the point at which the effect of disclosure of the information has been fully reflected in the share price'.

In particular, the sentence in the judgment that directly supports the conclusion is the following: "In this case, 'unrealised profits' are calculated as the amount obtained by multiplying the difference between the share price at the point at which the effect of disclosure of the information has been fully reflected in the share price and the actual purchase price per share by the number of shares that were the object of the use of material non-public information and were held at that time."

This sentence is not merely an abstract declaration; it serves as the reference point confirming the legal premise on which the judgment of the court below was upheld.

Sources for this section: Supreme Court Judgment 2021Do1143 rendered on September 30, 2021 — official text of the judgment, National Law Information Center

Key Factors of Judgment Identified in the Judgment and a Record Comparison Table

The table below sets out the factors of judgment to which the Court gave weight in Judgment 2021Do1143 and the role each factor played in the operative part (dismissal).

Sources for this section: Supreme Court Judgment 2021Do1143 rendered on September 30, 2021 — official text of the judgment, National Law Information Center

Competing Readings of the Same Facts

In this case, the court below upheld without change the first-instance judgment, which found that the Defendant's purchase of 59,000 shares using information on a decision to increase capital for consideration before that information was disclosed constituted the use of material non-public information. Under the Supreme Court's legal principle, profits causally connected to the violation are divided into realised and unrealised profits, and unrealised profits are calculated as the difference between the share price at the point at which the effect of disclosure of the information has been fully reflected in the share price and the actual purchase price per share, multiplied by the number of the relevant shares held at that time.

Accordingly, when analysing similar cases, one should not merely quote the concluding sentence but should test, as a counter-hypothesis, how the conclusion would change if any one of the factors of judgment listed in the table above were absent.

Sources for this section: Supreme Court Judgment 2021Do1143 rendered on September 30, 2021 — official text of the judgment, National Law Information Center

Remaining Questions and Conditions for Revisiting

A follow-up question that remains after reading this judgment is the following: what special circumstances would distinguish a case from one in which the shares were actually sold after the effect of disclosure of the information had been reflected in the share price?

It is also clear when this analytical framework should be re-examined as further materials or precedents accumulate. It should be reread if Article 443 of the former Financial Investment Services and Capital Markets Act is amended or if an en banc judgment on the same issue is rendered.

This is a research analysis prepared by comparing the original text and referenced provisions of Supreme Court Judgment 2021Do1143 rendered on September 30, 2021, as published on the National Law Information Center, as of October 21, 2026. It does not substitute for the conduct of litigation by, or legal advice to, any particular party.

Sources for this section: Supreme Court Judgment 2021Do1143 rendered on September 30, 2021 — official text of the judgment, National Law Information Center