When does a disclosure count as 'spreading false facts'? Decision 2003Do686 and the test of whether the disclosed content itself is false

Question

The former Securities and Exchange Act, in Article 188-4(4), prohibited fraudulent unfair trading in securities, including, as the decision quotes it, deliberately spreading a false price, a false fact or a rumour, or using deception, in order to obtain an unjust gain in connection with trading in securities, and, in subparagraph 2, misleading others by using a document falsely indicating an important matter in order to obtain money or other property. The question is what makes the communication false: must the disclosed content itself be untrue, or is it enough that the person making it never intended or was unable to do what the disclosure describes.

Decision 2003Do686 raises that question in a criminal case. Defendant 1 had taken over Non-party 1 Company, caused announcements that a proposal to add 'information and communications related' business to the company's business purposes had been submitted to an extraordinary general meeting and had been passed there, and had the same content reported in two newspapers; the court below convicted him of spreading false facts on the ground that he had neither the will nor the ability to pursue such business and made the announcements to sell shares at a high price.

Material to check

The provisions are four articles of the former Securities and Exchange Act, cited by the decision as the text before its amendment by Act No. 6423 of 28 March 2001: Article 186(1), Article 188-2(1), Article 188-4(4) and Article 207-2. Their current texts were not given among the texts read for this brief, and the decision applies them in their former wording; among the points it records is that Article 186(1)(4) made disclosure mandatory when a resolution to change the business purposes is passed.

The decisions are Decision 2003Do686 and those it cites on the points taken up here: Decision 2000Do4444 (19 January 2001) on the purpose of Article 188-4(4) and the standard for fraudulent unfair trading, and Decision 2002Do1696 (22 July 2002) on the same standard and on the meaning of 'unjust gain'. On the calculation of 'gains from the violation' under Article 207-2 the decision cites Decision 2002Do1256 (14 June 2002) and Decision 2002Do1855 (26 July 2002). The decision also cites Decision 2002Do6053 (10 January 2003), whose text could not be opened for this brief and is therefore left undescribed here.

Possible readings

On the first reading, falsity is tested against the content of what was disclosed. Decision 2003Do686 holds that whether a person spread a false fact or made a false indication 'is to be judged by whether the disclosed content itself is false, and not by whether that person actually had the will and the ability to realise the disclosed content'. A true statement does not become false because the speaker privately meant something else.

A second reading follows from the law's own disclosure duty. The decision records that Article 186(1)(4) of the former Act required disclosure when a resolution to change the business purposes is passed, and holds that where the record shows a genuine amendment of the articles adopted by a shareholders' meeting, the disclosed content cannot be called false. Announcing a real corporate act, the decision adds, is not false dissemination even if the person had no will or ability to invest in the new business from the start, or never pursued it after the announcement.

A third reading concerns the surrounding elements rather than falsity itself. Following Decision 2000Do4444 and Decision 2002Do1696, the decision states that whether an act is connected with trading in securities, whether it is false, and whether an unjust gain or economic benefit was sought are to be judged by objective criteria, comprehensively weighing the actor's position, the issuer's management condition and the trend of its share price, and the circumstances before and after the act; and that 'unjust gain' is a broad concept covering intangible gains such as acquiring management control, not only personal and tangible economic gain from disposing of securities, but also passive gains such as avoiding loss and future gains not yet realised.

What the decisions held

Decision 2003Do686 (14 November 2003) set aside the guilty part of the judgment of the Seoul District Court of 22 January 2003 (2002No5173) as to Defendant 1 and remanded that part to the collegiate bench of the Seoul District Court, and dismissed the appeals of Defendant 2 and of the prosecutor. On the charge of spreading false facts, it held that the court below had misunderstood the law, because falsity depends on the disclosed content itself rather than on the actor's will or ability to invest.

Applying that rule, the decision found that Non-party 1 Company had in fact amended its articles by adding 'information and communications related' business through a shareholders' meeting, as the announcements said, so the disclosed content itself was not false. It added that disclosure of that fact was mandatory under Article 186(1)(4) of the former Act, so publishing it or having it reported could not be treated as spreading a false fact or making a false indication even if Defendant 1 had lacked the will and the ability to pursue the business from the outset, or never pursued it afterwards. The court below had convicted on precisely that reasoning, which the decision holds to be either a breach of the rules of evidence in wrongly finding the facts or a misunderstanding of the law on the Securities and Exchange Act, in either case affecting the result.

The decision upheld the court below's findings on the other points against Defendant 1. It held that facts falling under Article 186(1) are in principle an 'important matter' under Article 188-4(4)(2), and that the false statements in the substantial holding report submitted on 17 June 2000 about the largest or major shareholder were such a matter; that, judged objectively and on the comprehensive view of the record, submitting that report was an act 'for the purpose of obtaining an unjust gain' and was causally connected with the gain, since Defendant 1 had planned from the start to sell shares acquired in others' names at 1,900 won and sold 1,068,000 shares at 3,940 won and 392,000 shares at 4,000 won on 22 August 2000 and the following day while concealing his holding and his borrowed funds; and that, applying the net-profit formula of Decision 2002Do1256 and Decision 2002Do1855, under which 'gains from the violation' in the proviso to Article 207-2 means total proceeds less total costs including purchase and sale commissions and the securities transaction tax but not transfer income tax, the court below rightly fixed the gain at 2,980,062,010 won. Because the grounds of the appeal that succeeded and those that failed stood in the relation of a single inclusive offence, the decision nevertheless set aside the whole guilty part as to Defendant 1 and remanded it.

As to the prosecutor's appeal, the decision held that 'a person who received the information' under Article 188-2 means a person to whom information learned in the course of duty by those listed in Article 188-2(1) was transmitted, and that Defendant 1, who produced the information together with Non-party 2 Company as a party to the share purchase contract, was not such a recipient, affirming the court below on that point as well.

Points left open

The decision fixes the test for falsity but not the boundary of what counts as 'the disclosed content itself'. Whether a statement that mixes a true corporate act with an untrue statement about future plans, or a statement of opinion or forecast, would itself be false content is not decided; the decision treats the announcements as reporting a completed corporate procedure and does not address disclosures of intention.

The decision also leaves undecided how its test interacts with the other charges. Although it set aside the whole guilty part as to Defendant 1 and remanded the case, holding the grounds to stand in the relation of a single inclusive offence, it upheld the court below's findings on the false substantial holding report and the calculation of the gain, and on the prosecutor's appeal the finding that Defendant 1 was not a person who received the information; whether any conduct by Defendant 1 relating to the announcements could be reached under other provisions, and the outcome on retrial, are not answered, nor does the decision say how its readings of the former Act carry over to the Act's later successors, whose texts were not among the texts read.

When to reconsider

We revisit this brief if the judgment on remand changes the treatment of the announcements, if a later Supreme Court decision states a different standard for falsity in disclosure cases, or if the successor provisions to Articles 186, 188-2, 188-4 and 207-2 are amended or replaced so that the former wording the decision applies is no longer the operative law.

Statutes referred to

• 구 증권거래법 제188조의4, 제186조, 제207조의2, 제188조의2

Decisions referred to

• 대법원 2003. 11. 14. 선고 2003도686 판결 · Decision ledger
• 대법원 2001. 1. 19. 선고 2000도4444 판결 · Decision ledger
• 대법원 2002. 7. 22. 선고 2002도1696 판결
• 대법원 2002. 6. 14. 선고 2002도1256 판결 · Decision ledger
• 대법원 2002. 7. 26. 선고 2002도1855 판결 · Decision ledger

Verification status

The texts read for this brief were read at the National Law Information Center on 24 October 2026: the decision in its published holdings, cited provisions, full reasons and disposition, and the cited decisions in their published holdings and summaries, except Decision 2002Do6053 (10 January 2003), whose text could not be opened. The provisions it applies were cited as former versions of the Securities and Exchange Act and their current texts were not among the texts read.