Open Decision Ledger · Capital markets & finance
The test for fraudulent unfair trading under the Securities and Exchange Act and a case of stock sales after publishing fraudulent accounting and a false business outlook
Translated from the Korean original. Read the Korean
Supreme Court, Jan. 19, 2001, 2000Do4444 (judgment)
Case name: 증권거래법위반·주식회사의외부감사에관한법률위반
Official text on the National Law Information Center
Question
By what standard is it determined whether conduct falls under the fraudulent unfair trading provision of Article 188-4 (4) of the Securities and Exchange Act, and does the conduct of a representative director who raised the stock price by publishing fraudulent accounting and a false business outlook and then sold his shares fall within that provision?
Holding
The transaction nexus, the falsity of the statement, and whether the acquisition of an improper gain was sought are determined by objective criteria, through a comprehensive consideration of the actor's position, the issuing company's management condition and stock price trends, and all circumstances before and after the conduct. The Supreme Court regarded as fraudulent unfair trading the conduct of a representative director who raised the stock price through fraudulent accounting and the publication of a false business outlook, then sold his shares and maintained his shareholding ratio through convertible bonds.
Summary of the holding, verbatim
유가증권의 매매 등 거래와 관련한 행위인지 여부나 허위의 여부 및 부당한 이득 또는 경제적 이익의 취득 도모 여부 등은 그 행위자의 지위, 발행회사의 경영상태와 그 주가의 동향, 그 행위 전후의 제반 사정 등을 종합적으로 고려하여 객관적인 기준에 의하여 판단하여야 한다.
Unofficial English translation
Whether an act is related to the trading, such as the purchase and sale, of securities, whether it is false, and whether it seeks to obtain an unjust profit or economic benefit, etc. must be determined by objective criteria, in comprehensive consideration of the status of the actor, the business conditions of the issuing company and the trend of its stock price, and all the circumstances before and after the act, etc.
Disposition
Dismissed Stated in the decision
상고를 기각한다.
Unofficial English translation
The appeal is dismissed.
Form of the test
Circumstances weighed Stated in the decision
그 행위 전후의 제반 사정 등을 종합적으로 고려하여 객관적인 기준에 의하여 판단하여야 한다.
Unofficial English translation
must be determined by objective criteria, in comprehensive consideration of all the circumstances before and after the act, etc.
Factors
- 그 행위자의 지위
- 발행회사의 경영상태와 그 주가의 동향
- 그 행위 전후의 제반 사정
- 미리 사모전환사채를 인수하는 방법으로 주식의 매도에 대비하였다가
Unofficial English translation
• the status of the actor
• the business conditions of the issuing company and the trend of its stock price
• all the circumstances before and after the act
• having prepared for the sale of the stocks by the method of subscribing for privately placed convertible bonds in advance,
Relation to precedent
States a new standard Read from the decision
종합적으로 고려하여 객관적인 기준에 의하여 판단하여야 한다
Unofficial English translation
must be determined by objective criteria in comprehensive consideration
Decisions referred to
None listed
Burden of proof
Not addressed Not in the decision
Open question and revisit condition
Even where there was fraudulent accounting or a false announcement, to what extent does room remain to deny the purpose of obtaining an improper gain where the circumstances objectively make it plain that the stock sales were solely for the purpose of raising operating funds for the company?
If subsequent decisions emerge on the interpretation of the unfair trading provisions of the Financial Investment Services and Capital Markets Act, which succeeded the fraudulent unfair trading provision of Article 188-4 (4) of the Securities and Exchange Act, this reading will be re-examined.
Cross-family AI independent reading & axis check
6 of 8 axes matched GPT-6 Astra (OpenAI, codex CLI) · 2026-10-16
When compared with an independent reading by another AI family (GPT-6 Astra), which read only the original text without seeing the first reading, 6 of the 8 axes matched, and the readings diverged on Axis 6 (Relation to precedent) and Axis 8 (Open question and revisit condition).
Axis 6 (Relation to precedent): Primary “States a new standard” vs Independent “Cannot be determined”
In that the original text sets out the criteria for objective comprehensive assessment, it can be read as stating a new standard; but in that it does not clarify the relation to earlier decisions, it can be read as cannot be determined.
종합적으로 고려하여 객관적인 기준에 의하여 판단하여야 한다Axis 8 (Open question and revisit condition): Primary “Even where there was fraudulent accounting or a false announcement, to what extent does room remain to deny the purpose of obtaining an improper gain where the circumstances objectively make it plain that the stock sales were solely for the purpose of raising operating funds for the company?” vs Independent “To what extent must the uncertainty of a business outlook be disclosed so that the announcement can be assessed as something other than the dissemination of a false fact or a representation inducing misunderstanding?”
The first reading asks whether the purpose of raising operating funds leaves room to deny the purpose of obtaining an improper gain, while the independent reading asks at what level the disclosure of the uncertainty of a business outlook excludes falsity.
유가증권의 매매 등 거래와 관련한 행위인지 여부나 허위의 여부 및 부당한 이득 또는 경제적 이익의 취득 도모 여부 등은 그 행위자의 지위, 발행회사의 경영상태와 그 주가의 동향, 그 행위 전후의 제반 사정 등을 종합적으로 고려하여 객관적인 기준에 의하여 판단하여야 한다.Raw responses and comparison record: Protocol · Blind readings (JSONL) · Axis comparison (JSONL) · SHA-256 (JSON)
Lower-court contrast & scope of application
Lower-court reading vs. Supreme Court holding
Lower-court context: The court below (Seoul District Court, 2000No6369), citing the reasons of the judgment of first instance, found the defendant guilty of violations of Article 188-4 (4), subparagraphs 1 and 2 of the Securities and Exchange Act, on the view that, after acquiring convertible bonds at a low price, he raised the stock price from a low of 7,100 won to a high of 22,400 won between February 28, 1997 and October 1 of the same year by means of false reports concerning the designation of a distribution complex, and disclosures of profits and statements in handouts based on fraudulent accounting, and sold 1,495,999 shares, thereby obtaining gains of approximately 12,700,000,000 won.
Supreme Court standard: The Supreme Court, after stating that the determination of fraudulent unfair trading follows objective criteria that comprehensively weigh the actor's position, the management condition and stock price trends, and the circumstances before and after the conduct, accepted the fact-finding and application of law of the court below as they were, and, taking the view that the assertion that the shares were sold for the purpose of raising operating funds for the company does not constitute an obstacle to the recognition of a purpose of obtaining an improper gain, dismissed the final appeal.
Distinguishing conditions
- Where the published business outlook had an objective basis at the time and merely failed to materialize due to a subsequent change in circumstances
- Where the actor did not occupy a position that controlled the management of the issuing company and thus cannot readily be regarded as having been involved in the false disclosure or report
- Where there was no temporal connection between the false representation and the stock sales, and no circumstances indicating that a device for maintaining the shareholding ratio had been arranged in advance
Record verification notes
Before asserting the same conclusion, one must check the Records for whether the published content was in fact false at the time, or was extremely unlikely to be realized; whether the false announcement and the timing of the stock price rise and the stock sales are connected; and whether there were circumstances of advance preparation, such as the acquisition of convertible bonds.
From the official text
Points at issue
[1] 증권거래법 제188조의4 제4항의 규정 취지 및 같은 항 소정의 사기적 부정거래행위의 판단 기준 [2] 주식회사의 대표이사가 분식결산의 방법으로 작성된 허위의 재무제표에 기초하여 그 회사의 재무에 관하여 허위의 사항을 기재한 사업보고서 등을 증권거래위원회나 증권거래소에 제출하고, 불확실한 사업전망을 마치 확정되었거나 곧 착수할 것처럼 공표하면서 그 내용을 신문보도나 유인물을 통하여 홍보하여 그 회사의 주가가 상승하자 자신이 지배하는 주식을 매도하여 상당한 경제적 이득을 얻었고, 그에 앞서 미리 사모전환사채를 인수하는 방법으로 주식의 매도에 대비하였다가 주식을 매도한 후 그 전환사채를 주식으로 전환하여 그 회사에 대한 자신의 지분율을 유지한 경우, 증권거래법상 사기적 부정거래행위에 해당한다고 한 사례
Unofficial English translation
[1] The purport of Article 188-4 (4) of the Securities and Exchange Act and the criteria for determining fraudulent unfair trading as provided in the same paragraph [2] A case where the representative director of a stock company submitted to the Securities and Exchange Commission or the Stock Exchange a business report, etc. stating false matters concerning the finances of the company on the basis of false financial statements prepared by means of window dressing, and, while publicly announcing uncertain business prospects as though they had been finalized or were about to commence shortly, promoted the contents through newspaper coverage or printed materials, and, when the stock price of the company rose as a result, sold stocks under his control to obtain a considerable economic gain, and had, in advance, prepared for the sale of the stocks by the method of subscribing for privately placed convertible bonds, and after selling the stocks converted those convertible bonds into stocks to maintain his shareholding ratio in the company, in which case the conduct constitutes fraudulent unfair trading under the Securities and Exchange Act
Summary of the holding
[1] 증권거래법 제188조의4 제4항 제1호는 유가증권의 매매 기타 거래와 관련하여 부당한 이득을 얻기 위하여 고의로 허위의 시세 또는 허위의 사실 기타 풍설을 유포하거나 위계를 쓰는 행위를 금지하고, 같은 항 제2호는 유가증권의 매매 기타 거래와 관련하여 중요한 사항에 관하여 허위의 표시가 된 문서를 이용하여 타인에게 오해를 유발하게 함으로써 금전 기타 재산상의 이익을 얻고자 하는 행위를 금지하고 있는바, 증권거래법이 이와 같이 사기적 부정거래행위를 금지하는 것은 증권거래에 관한 사기적 부정거래가 다수인에게 영향을 미치고 증권시장 전체를 불건전하게 할 수 있기 때문에 증권거래에 참가하는 개개의 투자자의 이익을 보호함과 함께 투자자 일반의 증권시장에 대한 신뢰를 보호하여 증권시장이 국민경제의 발전에 기여할 수 있도록 함에 그 목적이 있다고 할 것이므로, 여기서 유가증권의 매매 등 거래와 관련한 행위인지 여부나 허위의 여부 및 부당한 이득 또는 경제적 이익의 취득 도모 여부 등은 그 행위자의 지위, 발행회사의 경영상태와 그 주가의 동향, 그 행위 전후의 제반 사정 등을 종합적으로 고려하여 객관적인 기준에 의하여 판단하여야 한다. [2] 주식회사의 대표이사가 분식결산의 방법으로 작성된 허위의 재무제표에 기초하여 그 회사의 재무에 관하여 허위의 사항을 기재한 사업보고서 등을 증권거래위원회나 증권거래소에 제출하고, 불확실한 사업전망을 마치 확정되었거나 곧 착수할 것처럼 공표하면서 그 내용을 신문보도나 유인물을 통하여 홍보하여 그 회사의 주가가 상승하자 자신이 지배하는 주식을 매도하여 상당한 경제적 이득을 얻었고, 그에 앞서 미리 사모전환사채를 인수하는 방법으로 주식의 매도에 대비하였다가 주식을 매도한 후 그 전환사채를 주식으로 전환하여 그 회사에 대한 자신의 지분율을 유지한 경우, 증권거래법상 사기적 부정거래행위에 해당한다고 한 사례.
Order
상고를 기각한다. 상고 후의 구금일수 중 120일을 원심판결의 본형에 산입한다.
Unofficial English translation
The appeal is dismissed. Of the days of detention after the final appeal, 120 days are computed into the principal sentence of the judgment of the court below.
Provisions referred to
[1] 증권거래법 제188조의4 제4항 [2] 증권거래법 제188조의4 제4항
Read 2026-10-16 · Cross-read 2026-10-16. All quotes matched against the official text. The Chinese-character placeholders the court used for anonymised parties are given in their Korean readings, and parenthetical Chinese-character glosses are omitted.
Every entry is published only after all quotes have been matched character by character against the official text, and audited by an independent second reading from a different model family across all eight axes. Both agreed axes and text-grounded interpretive divergences are recorded openly. The ledger is a research record, not an assessment of the court or advice on any matter.
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