RISCON Legal Brief · First edition · Capital markets & finance
When does unpublished price-sensitive information come into existence? Supreme Court Decision 2008Do9623 on information that may have a material impact on an investor's judgement
Under former Article 188-2(1) and (2) of the Securities and Exchange Act, as the Supreme Court read them in Decision 2008Do9623 (26 November 2009), important information exists once it has concretised to the point where a reasonable investor would weigh its materiality and the likelihood of the fact occurring and find it of value in deciding on a securities trade — not only once it is objectively complete.
First edition. Statute references are checked against the official text. Case law is cited only where the brief lists the decision below, checked against its official text. 2026-10-24
Question
Former Article 188-2(1) of the Securities and Exchange Act prohibited the use of unpublished material information, and the same article's paragraph 2 supplied the test for materiality: information that may have a material impact on an investor's investment judgement. The question is what that phrase means, and at what point in a company's internal deliberations such information can be said to have been generated.
Decision 2008Do9623 raises that question in a prosecution for passing information. Defendant 1, an officer of Non-party 2 Company who handled corporate PR and stock management for Non-party 1 Company, told Defendant 2 in mid-January 2004 that Non-party 1 Company was considering 'acquisition of treasury shares followed by cancellation out of profits' as a way of supporting its share price. The Seoul High Court held in its judgment of 10 October 2008 (2008No1552) that at that time implementation of the plan was still fluid and indeterminate, so the information was not 'important information'. The prosecution appealed.
Material to check
The decision applies the former Securities and Exchange Act, which was repealed by Article 2 of the Supplementary Provisions of the Financial Investment Services and Capital Markets Act (promulgated on 3 August 2007 as Act No. 8635 and in force from 4 February 2009). Its cited provisions are former Article 188-2(1) and (2) on the prohibition of the use of unpublished information, and former Article 186(1)(9) and (11), which give examples of unpublished material information. The decision's reference list points to Article 174(1) and Article 161(1)(5) of the Financial Investment Services and Capital Markets Act as their current counterparts. The decision also relies on the Korea Securities Dealers Association Quotation Regulations as amended on 5 September 2003 and in force from 2 January 2004: Article 23(1)(iv) required a company registered with the association to be designated as a managed issue where the closing price of its ordinary shares stayed below 40% of face value for 30 consecutive trading days.
The decisions are the decision itself and three it cites: Decision 94Do2792 (30 June 1995), which defined information that may have a material impact on an investor's judgement and found that undisclosed information about a subsidiary's fire loss and a year-end deficit fell within the definition; Decision 2003Do4320 (11 May 2006), which repeated the definition and addressed what counts as disclosure of internal information; and Decision 2008Do6219 (27 November 2008), which stated both the definition and the rule on when such information is generated.
Possible readings
Read with the cited precedents, the phrase 'information that may have a material impact on an investor's investment judgement' means, in the words the decision adopts, information among the facts that may have a material impact on a corporation's management, assets and the like which a reasonable investor, weighing the information's materiality against the likelihood that the fact will occur, would regard as having important value in deciding whether to trade securities. The test is that of the reasonable investor and it is comparative: materiality and probability are weighed against each other.
A second reading concerns timing. Decision 2008Do6219, cited by the decision, and the decision itself hold that important information generated inside a corporation does not appear suddenly in finished form but takes shape through several stages. It is therefore not the case that important information is generated only when it has been completed in an objectively clear and certain way; it is generated once it has concretised to the point where a reasonable investor, on the same weighing of materiality and likelihood, would find it of value in deciding on a securities trade.
A third reading follows the decision's treatment of market awareness. The decision states that the stock market's vague awareness that a company needs to support its share price, and confirmation that the company is actually examining a specific plan internally, differ in value as information. Even where a plan has not been fixed, information that it is under concrete examination inside the company can be material enough to serve as a basis for deciding on a trade in that company's shares.
What the decisions held
Supreme Court Decision 2008Do9623 (26 November 2009) set aside the Seoul High Court's judgment of 10 October 2008 (2008No1552) and remanded the case to the Seoul High Court. The appeal was brought by the prosecutor; the defendants were Defendant 1 and two others, represented by, among others, Lawyer In Chi-jeong of Law Firm Jeongpyeong.
Applying the rule, the Court drew on the evidence the lower court had lawfully adopted. Article 23(1)(iv) of the Korea Securities Dealers Association Quotation Regulations, as amended on 5 September 2003 and effective from 2 January 2004, required a managed-issue designation where the closing price stayed below 40% of face value for 30 consecutive trading days. Non-party 1 Company's shares had a face value of 1,000 Korean won and traded below 400 Korean won continuously after 2 January 2004, so a price rise was needed to avoid designation, and this was known in the market. The company had tried a treasury share trust around June 2003 and a face-value split around November 2003, and both failed. After extended consideration, Defendant 1, the officer in charge of stock management, proposed the 'treasury share acquisition followed by cancellation out of profits' plan in mid-January 2004 and instructed Non-party 4 and Non-party 5 of the finance team to prepare it. Non-party 5 drew up a proposal titled 'on direct acquisition of treasury shares and cancellation out of profits' on 9 February 2004, after which the board resolved on the item and the company disclosed the plan on the day of that resolution.
From these facts the Court found that in mid-January 2004 the plan already had a sufficient likelihood of being realised: the company urgently needed a price rise, Defendant 1 proposed the plan after prolonged study and ordered preparation, an alternative plan looked unlikely after the 2003 attempts failed, and the plan was in fact adopted. The plan also fell within the information exemplified in former Article 186(1)(9) and (11), so its materiality to management or the share price was established. Holding that the information was already generated as unpublished material information when Defendant 1 passed it to Defendant 2 in mid-January 2004, the Court held that the lower court had misunderstood the law on 'unpublished material information' in former Article 188-2(1) and had thereby affected the result.
Points left open
The decision leaves the outcome of the case to the court on remand. It holds only that the information was unpublished material information in mid-January 2004 and that the lower court's contrary holding was wrong; it does not decide the defendants' guilt, the existence of the defence of prior knowledge or any sentence.
The decision also leaves open how high the likelihood of realisation must be. It says the plan in mid-January 2004 had 'a sufficient likelihood' of being realised, weighing the urgent need for a price rise, the officer's study and instruction, the failure of earlier alternatives and the plan's later adoption; it sets no threshold beyond the reasonable-investor weighing of materiality against probability, and does not say how the test applies where several competing plans are under examination at once.
When to reconsider
We revisit this brief if the Supreme Court later fixes the degree of probability required for information to be generated, if the Seoul High Court's judgment on remand addresses the defendants' liability in a way the Supreme Court reviews, or if the corresponding provisions of the Financial Investment Services and Capital Markets Act are amended.
Statutes referred to
- 구 증권거래법 제188조의2, 제186조
Decisions referred to
Verification status
All texts were read at the National Law Information Center (law.go.kr) on 24 October 2026. The decision was read in its published summary, holdings, cited provisions, cited precedents and full reasons; the cited articles are former versions and were read only as the decision cites them.