The Securities-related Class Action Act: Overview
Korea’s Securities-related Class Action Act(hereinafter the “Act”) has been effective from January 1 2005. Currently the Act covers all companies whose securities are listed on the Korea Stock Exchange or registered with the Korea Securities Dealers Association.
There are four causes of action under the Act: (i) damages for false information in a securities report or prospectus; (ii) damages for false information in business reports and semi-annual and quarterly reports; (iii) damages for insider trading or price manipulation; and (iv) claims against auditors.
Damages are calculated in accordance with the Securities and Exchange Act(SEA) and other existing laws. For example, under the SEA, damages caused by false information are calculated by the acquisition price minus (i) the market price at the closing of the courtroom arguments, or (ii) if disposed of earlier, the disposition price. If damages are complex to work out, however, courts may use sampling, averaging, statistical or other rational methods.
In certain cases, the burden of proof of the lack of causal connection between the falsity and damages will fall on the defendant. Damages will then be reduced by the portion that is proven as unrelated to the cause of action.
Class certification requires (i) at least 50 class members, with the total number of their shares constituting 0.01% of all issued and outstanding shares of the company; (ii) commonality of legal or factual issues; (iii) class action being an efficient and suitable means for protection of rights or interests of all members; and (iv) the complaint being properly drafted and not defective. The representative member should be one will the largest stake and capable of fair and proper representation.
The Act also includes provisions on opt-out and preclusion effect on members who did not opt out, and parens patriae role of the court-the withdrawal or settlement of a lawsuit, waiver of a claim or right to appeal, and the distribution of damages, require the court’s approval.
Bribery by a member, class representative or class attorney is subject to punishment by as much as lifetime imprisonment and a fine not exceeding the amount of bribery. A falsity in the complaint or failure to comply with a court to present documents will be subject to penalty of W30 million or less.
This article is based on my previous article with co-writer Mr. ChuelHyun Kim published in International Financial Law Review /July 2004 edition. I added some updates on original article.
© 2008 Wonil Chung, a Korean Securities Lawyer/Chung & Partners, a Korean Law Firm. All rights reserved. Some copyrights, photos, icons, trademarks, trade dress, or other commercial symbols that appear on this post are the property of the respective owners.