Companies Doing Illegal Stock Transaction Are Subject to Group Lawsuit

Beginning next April, companies related to the illegal stock transaction are to be subject to the group lawsuit regardless of the company`s amount of asset. Therefore, most of the corruption with regard to `illegal stock transaction` of companies registered in KOSDAQ is expected to be cut off.

On the other hand, investors, who suffer the loss due to the companies` false notice or window-dressing, can file the group lawsuit only when the related company`s amount of asset is more than 2 trillion won.

The Ministry of Justice and Ministry of Finance and Economy made a tentative draft of ` stock related group lawsuit ` yesterday, and decided to submit the draft to the National Assembly after deciding on the bill at the public hearing during this month.

Although the government originally planned to introduce the stock related group lawsuit in charge of three cases, that is, false notice, insolvent account, and manipulation of stock price, to the KOSDAQ registered companies with the maximum 2 trillion won of asset and the listed companies, it has included the smaller companies judging that the smaller companies are more involved in illegal stock transaction than the big companies.

The Ministry of Justice said that ``the government made such a tentative draft focusing on the protection of rights and interests of the minority shareholders due to the financial corruption such as illegal stock transaction of the KOSDAQ registered companies.``

According to the tentative draft, there should be more than 50 victims to file the group lawsuit, and they must have a lawyer as the representative of the litigants. Stock related group lawsuit will be enforced next April.

The government made the qualification of the representative of the litigants as such; lawyers who have not participated in more than 3 cases of stock related group lawsuit in recent 3 years; lawyers who have not had any business with the defendants for the three years based on the time of claiming the lawsuit; lawyers who have not bought stocks or bonds issued by the defendants for the past one year.

Courts under the jurisdiction can question the representative of the litigants. If the litigants of the group lawsuit intend to reconcile or withdraw the lawsuit before the court decision is made, they should notify the court in advance and receive the approval from the court. The litigants also publish the content of the group lawsuit in the nationwide daily newspaper. The Korea Stock Exchange or the Korea Securities Dealers Association will inform the general public through the official notice.

yhchoi65@donga.com