Supreme Court: Securities Firms Also Liable for 200 Billion Won Loss in China Goseom Incident Affecting Investors

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyung-min] The Supreme Court has recognized the responsibility of the securities firm that underwrote the listing in relation to the 2011 "China Goseom Incident," which caused investors losses amounting to 200 billion KRW.

The Supreme Court's First Division (Presiding Justice Kwon Soon-il) on the 27th overturned the lower court's ruling that had favored Hanwha Investment & Securities in the appeal against the Financial Services Commission's corrective order and imposition of fines, and remanded the case to the Seoul High Court.

It was revealed that Goseom, a Chinese textile company, fraudulently obtained approximately 210 billion KRW in public offering funds by deceiving investors when submitting its securities registration statement for listing on the domestic stock market in December 2010. Subsequently, Goseom, which was listed on the KOSPI market in January 2011, had its trading suspended within two months after accounting fraud was uncovered, and was ultimately delisted in October 2013. As a result, investors are estimated to have lost about 210 billion KRW.

At that time, the financial authorities concluded sanctions by imposing fines of 2 billion KRW each, the largest amount ever, on Mirae Asset Daewoo (formerly Daewoo Securities) and Hanwha Investment & Securities, the lead underwriters of the listing. However, Hanwha Investment & Securities filed a lawsuit requesting the cancellation of the fine imposition, arguing that they had only followed the audit opinions of the accounting firm at the time of Goseom's listing.

Both the first and second trials ruled in favor of Hanwha Investment & Securities, finding that they did not lead the listing. However, the Supreme Court's judgment differed. The court stated, "If the underwriter fails to prevent the intentional or grossly negligent false statements of important matters in the securities registration statement, they are subject to fines."

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