Does recommending shares on television without disclosing one's own holding amount to unfair means? Supreme Court Decision 2018Do13864 on 'unfair means, scheme or artifice' and 'the use of a deceitful device'

Question

Article 178(1)(i) of the Capital Markets Act forbids anyone, in connection with the trading or other dealing of financial investment products, to use 'unfair means, scheme or artifice'; Article 178(2) forbids spreading rumours, using a deceitful device, assault or threats for the purpose of dealing or of moving market prices. The question is what those words cover, and in particular whether recommending a security one already holds, without saying so, falls within them.

Decision 2018Do13864 raises it on a prosecution of a man who worked as a securities broadcasting expert on a broadcasting company's programmes and, the indictment said, bought shares, recommended them on air without disclosing his purchases and sold them once the price rose. The lower court acquitted him on the ground that he had never told viewers to buy; the Supreme Court set that view aside.

Material to check

Article 178 of the Capital Markets Act, headed 'Prohibition of unfair transactions and the like', lists three forbidden acts in connection with trading in financial investment products: (i) using unfair means, scheme or artifice, (ii) using documents or other records with false entries or statements on important matters, or with necessary statements on important matters omitted so as not to mislead others, in order to obtain money or other property interests, and (iii) using false market prices to induce trading. Paragraph (2) forbids spreading rumours, using a deceitful device, assault or threats for the purpose of dealing or of moving prices. Article 443(1)(viii) and (ix) punishes breach of these paragraphs with imprisonment of one year or more, or a fine of four to six times the gain obtained or the loss avoided, capped at 500 million won in the cases its proviso names; Article 443(2) aggravates the imprisonment where that amount is 500 million won or more, and Article 443(3) allows disqualification of up to ten years. The current text of Article 443 as published is Act No. 21857 of 4 August 2026, a consequential amendment in force from 2 October 2026; the penalty is not at issue here.

The decisions are Decision 2018Do13864 and four it cites. Decision 2013Do9933 (16 January 2014) gives the meaning of 'unfair means, scheme or artifice' under the former Article 178(1)(i) and the test where a business operator offered an investment opportunity to one investor only. Decision 2011Do8109 (27 October 2011) defines a deceitful device and also deals with comprehensive joinder and with the gain obtained by the violation. Decision 2014Do6910 (30 March 2017) holds that an undisclosed pre-purchase and post-recommendation sale, so-called scalping, is both an unfair means and a use of deceit. Decision 2016Do3411 (8 June 2017) is cited for how to judge, under the former Article 178(1)(i), (ii) and (2), whether conduct relates to a transaction, is an unfair means, scheme or artifice, is a falsehood or a deceitful device, or aims at moving market prices; the texts read for this brief give only the issue that decision addressed. Decision 2020Do9836 (14 January 2021), cited in the reasons only, is referred to on the finality of a point the Supreme Court has already rejected.

Possible readings

Read with Decision 2013Do9933, 'unfair means, scheme or artifice' means any means, scheme or technique that social norms recognise as unfair. Whether an act is unfair is judged by whether it is prohibited by statutes or the like, and whether it risks harming the fairness, reliability and efficiency of the capital market by causing other investors to judge wrongly, damaging fair competition and shifting losses on to good-faith investors. Decision 2013Do9933 applied that to a selective offer by weighing the nature of the market, its participants, the deal's structure and manner, the motive and method of the offer and the effect on other investors; Decision 2018Do13864 did not have to weigh those factors.

Read with Decision 2011Do8109, a deceitful device under Article 178(2) means any means, scheme or technique intended to deceive a counterparty or unspecified investors so as to induce them to a certain act, and 'deception' means misleading another by asserting a false fact that differs from objective fact. On the decision's reading, omitting a statement of one's personal interest, which is needed to avoid investor misunderstanding, gives the impression of a recommendation from an objective motive and so induces the trade.

Decision 2014Do6910, which Decision 2018Do13864 adopts, holds that an adviser, securities analyst, media worker or website operator who recommends a security he has pre-purchased and holds, and may sell after the recommendation, without showing that interest, commits both wrongs under Article 178(1)(i) and Article 178(2). The decision defines 'recommending the purchase of a security' as introducing to investors that a specific security is suitable for purchase so as to arouse an intention to buy it; the rule applies to conduct meeting that definition. Where a statement is a forecast of financial condition or results, the objective test also asks whether it was made sincerely on a reasonable basis; Decision 2018Do13864, citing Decision 2016Do3411, supplies that factor.

What the decisions held

Decision 2018Do13864 held that such conduct falls within Article 178(1)(i) and also within the use of a deceitful device in Article 178(2), and defined 'recommending the purchase of a security' as introducing to investors that a specific security is suitable for purchase so as to arouse an intention to buy it. Whether an act is such a recommendation, and whether it is an unfair means or a use of deceit, is judged by an objective standard, taking the actor's standing, the motive and course of the statement, whether a forecast was made sincerely on a reasonable basis, the risk of misleading counterparties or unspecified investors, the actor's conduct afterwards, the share price movement and all the circumstances before and after the act. The Court unanimously set aside the lower court's judgment and remitted the case to the Seoul High Court.

On the facts the Court found that the defendant had acted as a 'securities analysis expert' from about 2009 on the company's regular programmes and run an internet securities broadcast to paying members; that on 4 October 2011 he bought 75,274 shares of Stock 1 for 3,064,479,814 won and at about 22:00 that day, hiding the purchase, spoke for about three minutes on Program 1 on buying interest and improving earnings with concrete figures, bought 800 more shares on 6 October and sold out on 17 and 18 October, the stock staying in his published portfolio; that on 2 November 2011 he bought 19,265 shares of Stock 3 for 175,311,500 won, sold 1,000 the same day, spoke for about six minutes on 8 November about improved earnings and a market share of first in Korea and second in the world, and sold out on 10 November; and that on 2 November 2011 he bought 1,307,585 shares of Stock 2 for 1,571,717,170 won, sold parts on 2, 4 and 7 November, on 8 November linked it to the launch of Park Geun-hye's presidential campaign, and sold out on 14 November. Given the reach of the company's regular broadcasts and the defendant's standing, these remarks could arouse an intention to buy and so were recommendations, and the omission of his interest made out both offences, in line with the intent of the remand judgment of 7 April 2017 (2015Do760).

The lower court had acquitted on the three stocks because it read 'recommendation' as requiring a statement to buy and could not find that the defendant expressed such an intention or meant to urge purchases; the Supreme Court held that legally wrong. As to Stock 4 it found no error in the lower court's refusal to find a recommendation. As to the remaining part of the indictment, dealing with an internet broadcasting cafe, text messages and a chat room, it held the prosecutor's ground of appeal improper, because that part had been acquitted before the remand judgment and the prosecutor's appeal on it rejected, so that it was already final (Decision 2020Do9836). Since the remaining part stood in a relationship of comprehensive joinder with the part reversed, the whole judgment was set aside.

Points left open

The test is one of overall weighing, and the decision gives no weight to any single factor and no threshold. It does not say how much disclosure of an interest is needed, whether a line in a published portfolio would suffice, or how the factors balance where the remarks mix facts about a company with opinion on its share price.

The decision lists advisers, securities analysts, media workers and website operators with words meaning 'and the like', and does not say whether persons outside those callings who speak to investors fall under the same rule. It also leaves undecided the gain obtained by the violation under Article 443, on which Decision 2011Do8109 has its own rule, and the penalty, neither of which was reached.

When to reconsider

We revisit this brief if the Supreme Court gives a weighting to the factors it listed or a rule on the sufficiency of interest disclosure, if it extends or narrows the class of persons covered, if the judgment on remand states the outcome of the retrial, or if Article 178 or Article 443 of the Capital Markets Act is amended.

Statutes referred to

• 자본시장과 금융투자업에 관한 법률 제178조, 제443조

Decisions referred to

• 대법원 2022. 5. 26. 선고 2018도13864 판결 · Decision ledger
• 대법원 2014. 1. 16. 선고 2013도9933 판결 · Decision ledger
• 대법원 2011. 10. 27. 선고 2011도8109 판결 · Decision ledger
• 대법원 2017. 3. 30. 선고 2014도6910 판결 · Decision ledger
• 대법원 2017. 6. 8. 선고 2016도3411 판결 · Decision ledger

Verification status

All texts were read at the National Law Information Center (law.go.kr) on 24 October 2026: the decision in its published holdings, summary, cited provisions and full reasons, the current text of Articles 178 and 443 of the Capital Markets Act, the published holdings and summaries of three of the cited decisions, and the issue statement of the fourth. The decision quotes the same words of Article 178 that the current text uses.