Undisclosed Information, Damages for Market Manipulation, and the Limits of Delegation to Enforcement Decrees: Three Judgments on Capital Markets Law

Question

Are the facts enumerated in the subparagraphs of Article 186(1) of the former Securities and Exchange Act a list that limits the scope of undisclosed material information, or examples that illustrate the standard of assessment? The Supreme Court held that the facts set out in the subparagraphs were not intended to restrict the scope to those facts but illustrated the standard of assessment. The materiality of information is therefore not tied to the types of facts enumerated and must be assessed in each individual case.

By what standard is it determined whether information may materially affect investors' investment decisions? The Supreme Court adopted as its standard information that a reasonable investor, weighing the magnitude of the information against the probability that the fact will occur, would consider to be of significant value in making decisions on transactions in securities. This standard differs from the mere magnitude of a fact in that it considers not only the content of the information but also the likelihood of its occurrence.

The brief also asks whether an investor not directly affected by a composite manipulative fraudulent trading scheme may claim damages, and whether an enforcement decree may widen the scope of taxation without delegation by statute. The core of the first question is how to link a market-level effect, namely price formation, to an individual's trade. The core of the second is to identify the basis for delegation by separating the periods before and after the statutory amendment.

Material to check

The wording of Article 186(1) and Article 188-2(2) of the former Securities and Exchange Act should be compared side by side with the legislative history leading to Article 174(1) of the current Financial Investment Services and Capital Markets Act. The structure of the provisions shows how the definition of information frames its requirements, and whether the enumeration in the subparagraphs limits the scope or illustrates the standard.

The types of manipulative fraudulent trading and the requirements for damages are set out on the basis of the wording of Article 176(2), subparagraphs 2 and 3, Article 177(1), Article 178(1), subparagraph 1 and Article 178(2), and Article 179(1) of the former Financial Investment Services and Capital Markets Act. The standard for determining whether the victim was not a direct target of the conduct, and the requirements for a claim for damages to arise, are each recorded.

Article 29(1), Article 29(3), subparagraph 6 and Article 29(5), subparagraph 1 of the Value-Added Tax Act, Article 61(1), subparagraph 9, item (b) of the Enforcement Decree of the Value-Added Tax Act, and the current Article 61(2), subparagraph 9, item (b) are set side by side in their wording before and after amendment. The difference before and after the amendment by Act No. 15223 of 19 December 2017 is the key to determining when the basis for including mileage-payment transactions in the value of supply was established.

As factual materials, the following should be gathered: the time at which the information came into existence and the route by which it was passed on; materials showing the level of market interest at the time; transaction records and order traces; and materials on the selection of comparators for calculating the normal share price, together with the results of statistical analysis. On the tax issue, the contracts and settlement records showing the settlement structure between business operators, and evidence identifying when the transactions took place, are examined together.

Possible readings

One view takes a narrow approach to materiality, tying it to the types of facts prescribed by statute: information serves as the basis for punishment and damages only if it falls within the same kind as the facts enumerated in the subparagraphs. The opposing view holds that, because the subparagraphs are merely examples of the standard of assessment, newly emerging information may also become material information depending on the company's circumstances and market interest. The former enhances predictability and the latter reduces regulatory gaps, so each has its own advantages.

In market manipulation cases, one view requires causation strictly, holding that the investor must specifically prove that the shares purchased were bought at a manipulated price. The opposing view holds that, if a price was formed by a series of acts, any investor who traded at that price may bring a claim, and so eases the burden of proof. As to the amount of damages, one view recognises only the difference between the normal share price at the time of purchase and the actual purchase price, while the other argues that methods of calculation beyond the event study approach should be permitted.

In the tax case, one view gives priority to formal adherence to the principle of no taxation without law, holding that the scope of taxation cannot be widened by an enforcement decree without a statutory basis. The opposing view regards the enforcement decree as having specified the relationship between supply and consideration within its power to prescribe matters necessary to implement the statute. The Supreme Court divided this dispute by period, assessing the time before and after 1 January 2018 differently, and thereby defined the boundary between the two positions.

What the decisions held

Supreme Court Judgment 2007Do9769 delivered 13 May 2010 interpreted the enumeration in the subparagraphs of Article 186(1) of the former Securities and Exchange Act not as limiting the scope to those facts but as illustrating the standard of assessment. The Court further held that information that may materially affect investors' investment decisions means, among facts that would materially affect the management and assets of a corporation, information that a reasonable investor, weighing the magnitude of the information against the probability that the fact will occur, would consider to be of significant value in making decisions on transactions in securities. The judgment is significant in setting out a standard built on two axes together: the nature of the information and the likelihood of its occurrence.

Supreme Court Judgment 2019Da292750 delivered 14 November 2024 held that even an investor not directly affected by a composite manipulative fraudulent trading scheme may claim damages under Article 179(1) of the former Financial Investment Services and Capital Markets Act if the investor proves that the shares were traded at a price formed by that series of acts. Through the reasoning that the investor can be regarded as having traded on the assumption that the market price was formed by the natural operation of supply and demand in the market, the Court made the market character of price formation the link for causation. The Court stated that the damages may be calculated as the difference between the normal share price that would have been formed at the time of purchase but for the conduct and the manipulated price actually paid. It further held that whether the conduct affected the formation of the share price may be determined, through expert appraisal such as an event study, by whether the difference between the share price movement during that period and the movement that would have occurred but for the conduct is statistically significant.

Supreme Court Judgment 2025Du34707 delivered 22 July 2026 stated, on the basis of Article 75 of the Constitution of the Republic of Korea, the standard that a Presidential Decree may be issued only on matters delegated to it by statute with their scope specifically defined and on matters necessary to implement statutes. Because Article 29 of the Value-Added Tax Act before its amendment by Act No. 15223 of 19 December 2017 contained no basis for including mileage-payment transactions in the value of supply, the Court held that the enforcement decree provision including mileage accrued by third parties exceeded the scope of delegation and was void. By contrast, from 1 January 2018 Article 29(3), subparagraph 6 of the amended Value-Added Tax Act provided the basis for delegation, and the amount corresponding to settlement payments between business operators could be regarded as standing in a relationship of supply and consideration; the Court therefore held the enforcement decree provisions both before and after amendment to be valid.

Practical checklist

First, check whether the record states which type of statutory fact the information in question fits, and whether it records, on the two axes of magnitude and probability, whether the information may be material under the standard of assessment even if it does not fit that type. Record in the same place when the information came into existence and whether the fact actually occurred.

Second, check whether evidence has been secured showing that the investor's trades took place at a manipulated price. The time of orders and the transaction records, their overlap with the period during which the series of acts took place, and materials supporting the distortion of the market price should be gathered separately.

Third, confirm readiness to explain the method of calculating the normal share price and its statistical significance. Document the criteria for selecting comparators and setting the period, the link explaining why the calculated difference constitutes damage, and the procedure for confirming whether that difference is statistically significant.

Fourth, set out the legislative history showing under which version of the statute the enforcement decree provision on which the tax disposition was based received its delegation. Dividing the periods before and after 1 January 2018, record separately when the taxable transactions took place and whether those transactions stand in a relationship of supply and consideration.

Glossary

Undisclosed material information means information that has not been disclosed and that, among facts that would materially affect the management and assets of a corporation, a reasonable investor, weighing the magnitude of the information against the probability that the fact will occur, would consider to be of significant value in making decisions on transactions in securities. The Supreme Court treated the statutory enumeration in the subparagraphs as examples of the standard and so drew its outer limits broadly.

Manipulative fraudulent trading refers to conduct that moves the market price by, for example, creating artificial supply and demand, and the normal share price means the price that would have been formed at the time of purchase but for such conduct. The event study approach estimates a normal rate of return by reference to comparator shares or an index and examines the difference from the actual rate of return; whether that difference is statistically significant is the axis of the assessment.

The principle of no taxation without law requires that matters concerning the rights and duties of citizens, such as the requirements for taxation and tax rates, be prescribed by statute. Blanket delegation is a method by which a statute leaves matters to an enforcement decree without specifically defining their scope, and it is distinct from delegation within a specific scope as provided in Article 75 of the Constitution of the Republic of Korea. Article 75 of the Constitution makes clear that a Presidential Decree may be issued only on matters delegated to it by statute with their scope specifically defined and on matters necessary to implement statutes.

Sources and limitations

This is a research document prepared solely on the basis of the verified judgments in Supreme Court 2007Do9769, Supreme Court 2019Da292750 and Supreme Court 2025Du34707 and the provisions cited in those judgments. The judgments and the text of the provisions in the Korea Law Information Center were checked as of 15 October 2026, and the cases cited in this brief are limited to the three above.

This brief is intended for general research and information and is not legal advice. The outcome of an individual case may vary with the facts, the evidence, the wording of the law in force at the relevant time and the course of the proceedings; where an actual determination is required, advice must be obtained from a lawyer or other professional.

Points left open

In cases involving undisclosed material information, the question remains whether the same information still counts as material after market interest has shifted. Because the standard is structured to consider the magnitude of the information and the probability of occurrence together, a decline in interest leaves room for the probability assessment to change.

In market manipulation cases, no settled method for assessing the effect on share prices has yet emerged to replace the event study approach. In tax cases, the boundaries need further refinement as to how far a widening of the scope of taxation should be accepted once a statutory amendment has created a basis for delegation, and as to whether settlement payments between business operators should be regarded as standing in a relationship of supply and consideration.

When to reconsider

When the law is amended, the wording of the relevant provisions and the scope of delegation are to be checked afresh. Whenever Article 174(1) or Article 443(1), subparagraph 1 of the Financial Investment Services and Capital Markets Act, or Article 29 of the Value-Added Tax Act and the related provisions of its Enforcement Decree are amended, check whether the standards of the three judgments above continue to apply.

The brief is to be revisited when new case law emerges or the market conditions concerned change. In particular, it is to be re-examined when there are cases dealing with data on market interest in assessing the materiality of information, cases accepting other statistical techniques in calculating damages for market manipulation, or cases addressing the scope of interpretation of the basis for delegation to enforcement decrees.

Statutes referred to

• 구 증권거래법(2008. 2. 29. 법률 제8863호로 개정되기 전의 것), 현행 자본시장과 금융투자업에 관한 법률 구 증권거래법 제186조 제1항, 제188조의2 제1항 제4호, 제188조의2 제2항, 제207조의2 제1항 제1호, 현행 자본시장과 금융투자업에 관한 법률 제174조 제1항, 제443조 제1항 제1호
• 구 자본시장과 금융투자업에 관한 법률(2013. 5. 28. 법률 제11845호로 개정되기 전의 것) 제176조 제2항 제2호, 제176조 제2항 제3호, 제177조 제1항, 제178조 제1항 제1호, 제178조 제2항, 제179조 제1항
• 헌법 제37조 제2항, 제38조, 제59조, 제75조
• 부가가치세법 및 구 부가가치세법(2017. 12. 19. 법률 제15223호로 개정되기 전의 것) 제29조 제1항, 제29조 제3항 제6호, 제29조 제5항 제1호
• 구 부가가치세법 시행령(2018. 2. 13. 대통령령 제28641호로 개정되기 전의 것), 현행 부가가치세법 시행령 구 부가가치세법 시행령 제61조 제1항 제9호 (나)목, 현행 부가가치세법 시행령 제61조 제2항 제9호 (나)목

Decisions referred to

• 대법원 2010. 5. 13. 선고 2007도9769 판결 · Decision ledger
• 대법원 2024. 11. 14. 선고 2019다292750 판결 · Decision ledger
• 대법원 2026. 7. 22. 선고 2025두34707 전원합의체 판결 · Decision ledger

Verification status

The text of the relevant provisions and the judgments in Supreme Court 2007Do9769, Supreme Court 2019Da292750 and Supreme Court 2025Du34707 were checked against the Korea Law Information Center as of 15 October 2026. This brief cites only the three judgments listed among the decisions covered.