When does buying shares amount to market manipulation? Supreme Court Decision 99Do2282 on 'the purpose of inducing trading'

Question

Article 188-4(2) of the Securities Exchange Act provides, as the decision quotes it, that 'no one shall, for the purpose of inducing trading in the securities market or the OTC market, do any of the following', and item (1) lists 'trading that, alone or in conspiracy with another, falsely makes securities trading appear to be brisk or moves the price of the securities, or the entrustment or acceptance of entrustment of such trading'. Two questions follow from those words: what 'the purpose of inducing trading' means, and how to judge whether particular trading falls within item (1).

Decision 99Do2282 answers both questions in a criminal case. The defendant had been convicted of manipulating the shares of a small listed company after losing heavily on his own holding; he appealed to the Supreme Court, arguing in substance that the trades were not price manipulation carried out with the purpose of inducing trading.

Material to check

The statute is Article 188-4(2) of the Securities Exchange Act, in the words the decision quotes: it prohibits conduct in any of its listed items done 'for the purpose of inducing trading in the securities market or the OTC market', and item (1) covers 'trading that, alone or in conspiracy with another, falsely makes securities trading appear to be brisk or moves the price of the securities, or the entrustment or acceptance of entrustment of such trading'. The decision cites Article 188-4(2)(1) as the provision applied; no current text of the article is given in the texts read for this brief.

The decisions are Decision 99Do2282 (26 June 2001), a criminal judgment in which the Supreme Court dismissed the defendant's appeal, and the judgment of the court below, the Seoul District Court's judgment 99No2265 (19 May 1999), which the Supreme Court held proper. No other precedent is cited in the texts read for this brief.

Possible readings

On the first question, the decision reads 'the purpose of inducing trading' as the purpose of causing investors to misperceive that a price moved by artificial manipulation was formed by the natural principles of supply and demand in the securities market, and of thereby drawing them into trading in securities. A price that has been moved by human hands is thus not enough on its own; the required purpose concerns how investors are meant to understand the price and what the trader seeks to bring about in their trading.

On the second question, the decision holds that whether trading is of a kind that 'falsely makes securities trading appear to be brisk or moves the price of the securities' must be judged comprehensively, taking into account the character of the securities, the total number of securities issued, the motive and type of the trading, the trend of the price of those securities, and the previous and current trading conditions. No single item on that list is stated to be decisive by itself.

A third reading follows from the second holding of the decision: an accumulation of shares can itself be market manipulation carried out with the purpose of inducing trading where it is the kind of irregular dealing commonly called an 'operation'. What matters is the substance of the trading and the circumstances listed above, not the name given to the trades or the fact that the buying is spread over many orders.

What the decisions held

Decision 99Do2282 dismissed the appeal, holding that the judgment of the court below was proper and that there was no misunderstanding of the law on the purpose of inducing trading in securities transactions and on price manipulation, nor any violation of the rules of evidence amounting to a mistake of fact. It stated the rule in the two readings above and then applied it to the record before it.

On the facts the decision found as follows. Non-party Company, Dongbang Agro Co., was a small and medium-sized maker and seller of agrochemicals; in January 1997 its capital was about 35 hundred million won, small against sales of about 407 hundred million won, it had about 700,000 shares issued, trading volume on the market was not large, and the share price stayed in the KRW 20,000s. Rumours of a merger and acquisition of Non-party Company circulated in April 1997 and the price rose sharply with a surge in volume. On the recommendation of Non-party 1, a university classmate, the defendant bought 10,000 shares in late April 1997 at KRW 67,000 to 68,000 a share, funding part of the price himself and borrowing the balance, about 4 hundred million won, from a securities company by credit purchase, with the shares pledged and a risk of a margin shortfall if the price fell below the KRW 40,000s. The price collapsed from May 1997 and reached the KRW 40,000s in early June, and the defendant learned that Non-party 1 had spread merger rumours to offload his own shares at a high price. In early July 1997 the defendant, introduced by Non-party 2, urged Co-defendant 1, a sales manager at the Apgujeong branch of Non-party securities company, to join the accumulation of the shares, causing Co-defendant 1 to buy them with Co-defendant 2's customer deposits. Between 4 June 1997 and 30 September 1997 the defendant traded through seven accounts opened in his and his employees' names at Daewoo Securities Sampung Branch and elsewhere, placing buy orders above the previous day's closing price or the immediately preceding price for the opening and closing auctions and above the immediately preceding or relative price in intraday trading, 51 times for 11,430 shares in total, forming an artificially high price. Non-party 2 did the same 66 times for 18,720 shares, and Co-defendants 1 and 2, between 21 July 1997 and 18 September 1997, matched high-price trades between accounts they managed 16 times for 19,230 shares and placed buy orders above the immediately preceding or relative price 37 times for 21,150 shares. The price rose from KRW 43,000 in mid-June 1997 to KRW 115,000 in mid-September 1997 and then fell sharply. Weighing the capital and number of shares issued, the way the defendant came to buy the shares, the motive and manner of the trades and the price trend and trading conditions, the decision held that the trades were irregular dealing of the kind commonly called an 'operation', carried out to make up the loss from the earlier fall and to relieve the margin shortfall, that they fell within item (1), and that the artificial raising of the price came from the purpose of making general investors misperceive Non-party Company's shares as promising and drawing them into trading. The court below had reached the same conclusion, and the decision held its judgment proper.

Points left open

The decision lists the circumstances to be weighed together but does not say how they rank or what result follows when some point one way and others another. It is therefore unsettled how the test applies where the trading consists only of buying over time, without matched high-price trades by others, or where no sharp and prolonged rise in price is shown.

The decision is a criminal judgment on Article 188-4(2) of the Securities Exchange Act. It leaves undecided whether the same conduct gives a private claim for damages, whether the purpose of inducing trading may be inferred from a price rise alone, and what quantities or price effects are required, if any, for trading to be treated as manipulation under item (1).

When to reconsider

We revisit this brief if Article 188-4(2) of the Securities Exchange Act is amended or replaced, if a later Supreme Court decision states a fixed rule for 'the purpose of inducing trading' or for share accumulation as manipulation, or if a decision addresses the civil consequences of the conduct this judgment describes.

Statutes referred to

• 증권거래법 제188조의4

Decisions referred to

• 대법원 2001. 6. 26. 선고 99도2282 판결 · Decision ledger

Verification status

The decision was read at the National Law Information Center on 24 October 2026, in its published headings, summary, cited provisions and full reasons. The texts read for this brief do not include a separate current text of Article 188-4(2) of the Securities Exchange Act, which the decision quotes in its own words.