Materiality of Capital Market Information and the Legality of Investigative Procedure: Standards Set Out in Three Judgments

Question

Where the field on the circumstances of raising acquisition funds in a large-scale shareholding report contains a false statement, the first issue is whether that statement constitutes a material matter capable of affecting an investor's investment judgment. Whether it falls within a matter that has a material impact on the property or management of a corporation, or a matter necessary for fair trading in financial investment products and the protection of investors, must be determined by considering both the content of the statement itself and its operation in the market.

Whether an unfair practice aimed at obtaining a pecuniary benefit is established also turns on whether the false statement could have been expected to boost share prices and the like. In practice, the pivotal question is how to fix the scope of the meaning of unfair means, scheme, or artifice and the scope of specific proof in respect thereof.

In addition, where information generated within a corporation is combined with certain external factors, it is also at issue whether that information constitutes material nonpublic information, whether a person who was involved in its generation during the course of acquisition negotiations qualifies as a person who has learned material nonpublic information, and whether the Procedure of receiving a mixed information storage medium by voluntary submission, transferring it to the office, and then searching, copying, and printing it without the presence of the submitter was lawful.

Material to check

The body of the large-scale shareholding report and its attached materials must first be obtained. Cross-check what is stated in the field on the circumstances of raising acquisition funds, how it departs from the actual flow of funds, and whether the purpose of holding and the large-scale shareholding situation were disclosed together, and organize the Records of changes in share price and trading volume before and after the disclosure.

Arrange the corporation's internal documents in chronological order. Obtain the minutes and written resolutions of the board of directors, internal review reports, and draft contracts and correspondence Records relating to the acquisition negotiations for bonds with new share subscription warrants, and identify when and at what stage the information was generated internally and who was involved in its generation.

Check the Procedure materials for a seizure upon voluntary submission. Examine how any declaration of intent limiting the scope of submission was recorded, whether the submission confirmation form, on-site video, audio recordings, the list of seized items, and the file specification were prepared and served, and whether traces of the guarantee of the right to participate remain in the Records of the searching, copying, and printing work at the investigative agency's office. Where financial transaction materials are also involved, check the Procedure under the Act on Real Name Financial Transactions and Confidentiality as well.

The amendment history of the statutes must invariably be checked. Because the former Financial Investment Services and Capital Markets Act applied to the matter of acquisition negotiations for bonds with new share subscription warrants, the textual differences between the provisions then in force and the current provisions, and when and how the constituent elements of Article 443, paragraph (1) concerning false statements were changed, must be cross-checked together.

Possible readings

One interpretation places the determination of a material matter on the objective importance of the stated content. Because the circumstances of raising acquisition funds disclose the source of the funds and the purpose of holding, it is sufficient that the statement is capable of affecting investment judgment, and if a rise in market price and the like could have been expected from the false statement, the conduct may be evaluated as an act aimed at obtaining a pecuniary benefit. The opposing interpretation requires, for the establishment of an unfair practice, the actual acquisition of a benefit or a substantial expectation thereof, and specific proof of intent. It is criticized that if accounting errors or even misentries arising from negligence are encompassed within unfair means, the scope of liability becomes excessively broad.

There is also a conflict regarding material nonpublic information. The expansive interpretation holds that if the information was generated internally in connection with the Work of a corporation, it constitutes material nonpublic information even though certain external factors or market information are combined with it. The narrow interpretation holds that if external market information is the principal element, that content has already spread widely in the market and has lost its character as internal information, and that information still in the process of generation is not yet fixed, so the determination of materiality should be reserved.

As to the seizure Procedure, the interpretation prioritizing the right to participate and the substantive-infringement interpretation face each other. The interpretation prioritizing the right to participate holds that where a mixed information storage medium is received by voluntary submission, transferred, and then searched, copied, and printed, the guarantee of an opportunity to participate and the service of a list of seized items specifying the file details are requirements, and that failing these, the Procedure is unlawful absent special circumstances. The substantive-infringement interpretation holds that only the relevant electronic information was copied and printed, so there was no actual infringement, and that where the submitter's consent is confirmed afterwards, the defect is cured.

What the decisions held

In a case involving a false statement in a report on large-volume holdings as to how the acquisition funds were raised, Supreme Court Judgment 2019Do12887 held that the statement concerned a matter that has a significant effect on the property or management of the corporation, or that is necessary for fair trading in a specific financial investment product and for investor protection, and that may affect investors' investment decisions. The thrust of the judgment is that even where the content of a disclosure reflects board resolutions and the like as they stand, so that the disclosure itself is hard to regard as false, the act of causing that disclosure to be made may constitute an unfair means, scheme or artifice if, in combination with other means or with the content, purpose or manner of a transaction, it can be regarded as unfair according to socially accepted norms. However, since an unfair means, scheme or artifice refers to any means, scheme or artifice recognised as unfair according to socially accepted norms, what further circumstances must accompany the conduct in an individual case must be determined separately.

Supreme Court Judgment 2021Do11170 took issue with a procedure in which an information storage medium containing commingled information was obtained by voluntary production and taken to the investigative agency's office, where it was searched, copied and printed. A declaration of intent by the person producing the medium that designates the electronic information or limits the scope of production must be construed strictly, and the investigative agency is not permitted to infer arbitrarily an intention of that person that has not been confirmed. Accordingly, the Court held that the person from whom the items were seized must be guaranteed an opportunity to participate and must be prepared and given a list of seized items specifying the files, and that absent such measures, the search and seizure cannot, absent special circumstances, be assessed as lawful even if only the relevant electronic information was copied and printed.

In a case involving the use of information learned during negotiations to subscribe for bonds with warrants, Supreme Court Judgment 2015Do5251 defined material non-public information as internal information concerning a listed corporation's management, financial condition, business results and the like that may significantly affect investors' investment decisions, before it has been disclosed so as to become available to an unspecified large number of persons. The Court further held that information generated within the corporation in connection with its business and the like constitutes material non-public information even if certain external factors or market information are combined with it, and that the relevant provision also applies to a person who learned the information through involvement in its generation in the course of contract negotiations. This judgment was decided on the basis of the former Financial Investment Services and Capital Markets Act.

Practical checklist

First, check whether it has been compared item by item which item of the disclosure document differs from the facts. Separately organize the circumstances as to whether the difference between the stated circumstances of raising acquisition funds and the actual flow of funds is of a nature capable of affecting an investor's investment judgment, and whether the false statement is such that a rise in market price and the like could have been expected from it.

Second, confirm the path of the information's generation in chronological order. Based on the corporation's internal documents, connect with the Evidence whether the information was generated internally, in what proportion external factors or market information were combined, and whether a person who participated in the negotiations learned it by being involved in its generation.

Third, inspect the Procedure Records of the voluntary submission. Check whether there was a declaration of intent limiting the scope of submission, whether an opportunity to participate was guaranteed to the side of the person subject to seizure, whether a list of seized items specifying the file details was prepared and served, and within what scope the searching, copying, and printing were carried out after the transfer to the investigative agency's office.

Fourth, fix the point in time of the applicable statutes. Record separately the constituent elements under the former Financial Investment Services and Capital Markets Act and the current Act, and where Article 12 of the Constitution and the provisions of the Criminal Procedure Act concerning seizure and search apply together, record the satisfaction of each requirement item by item.

Glossary

A material matter means a matter that has a material impact on the property or management of a corporation, or that is necessary for fair trading in a specific financial investment product and the protection of investors, and that is capable of affecting an investor's investment judgment. A matter disclosing the source of funds and the purpose of holding, such as the circumstances of raising acquisition funds, is one example thereof.

Unfair means, scheme, or artifice means all means, schemes, or artifices recognized as unfair in light of generally accepted ideas. This concept encompasses an act of intentionally conveying information contrary to the facts, while functioning as a framework of judgment for drawing the line between such conduct and simple negligence or mistake.

Material nonpublic information means internal information of a listed company, such as its management, financial condition, and business results, that may have a significant impact on an investor's investment judgment, prior to its disclosure so that an unspecified number of persons may know it. Voluntary submission means a Procedure of obtaining an article by the voluntary submission of the owner or custodian, without resort to seizure or search, and a list of seized items is a document specifying the details of the seized articles or electronic information, which is prepared and served.

Sources and limitations

This white paper was prepared solely on the basis of Supreme Court Decision 2019Do12887, Supreme Court Decision 2021Do11170, and Supreme Court Decision 2015Do5251, and the provisions cited in those decisions. The point of verification is 2026-10-15, and the relevant text of the provisions and the judgment texts were cross-checked at the Korea Law Information Center.

This document is general research material and is not legal advice. A determination on an individual matter is possible only after separately confirming the facts, the Evidence, and the amendment status of the applicable statutes, and no conclusion whatsoever should be drawn from what is written here alone.

Points left open

The criteria as to what further circumstances are required for a disclosure faithfully reflecting the contents of a board resolution to fall within unfair means are not settled by the three decisions alone. How far the circumstances of the resolution, the circumstances of the statement, its operation in the market, and the awareness of the decision-maker must be considered together remains to be determined.

Moreover, whether a defect in a seizure upon voluntary submission may be cured by subsequent consent, and whether information still in the process of generation may be evaluated as material nonpublic information even where the acquisition negotiations ultimately broke down and no contract was concluded, are not expressly resolved within the decisions given.

When to reconsider

This white paper must be reviewed again where a decision bearing the same case number is again addressed in a retrial or at another instance, or where the cited provisions are amended and the wording of their constituent elements changes. Where the disclosure forms or the regulations relating to reporting of large-scale shareholding are changed, the portion setting out the criteria for determining a material matter is to be reconfirmed as well.

Where the provisions of the Criminal Procedure Act concerning the Procedure of seizure and search or the Procedure provisions of the Act on Real Name Financial Transactions and Confidentiality are amended, and where new determinations are rendered on the effect of subsequent consent or the manner of guaranteeing the right to participate, the relevant portion is to be reorganized. Where additional determinations are rendered on the criteria for evaluating the stage of information generation, the portion on material nonpublic information is to be updated as well.

Statutes referred to

• 자본시장과 금융투자업에 관한 법률 제174조 제1항, 제178조 제1항 제1호, 제2호, 제443조 제1항 제1호, 제8호
• 구 자본시장과 금융투자업에 관한 법률(2013. 5. 28. 법률 제11845호로 개정되기 전의 것) 제174조 제1항 제4호, 제443조 제1항 제1호
• 헌법 제12조 제1항, 제3항
• 형사소송법 제106조, 제118조, 제121조, 제129조, 제215조, 제218조, 제219조
• 금융실명거래 및 비밀보장에 관한 법률 제4조 제2항

Decisions referred to

• 대법원 2024. 5. 30. 선고 2019도12887 판결 · Decision ledger
• 대법원 2022. 1. 27. 선고 2021도11170 판결 · Decision ledger
• 대법원 2017. 10. 31. 선고 2015도5251 판결 · Decision ledger

Verification status

The relevant text of the provisions and the judgment texts of Supreme Court Decision 2019Do12887, Supreme Court Decision 2021Do11170, and Supreme Court Decision 2015Do5251 were cross-checked at the Korea Law Information Center as of 2026-10-15. This white paper cites only the three decisions listed among the decisions it addresses.