‘Unjust Enrichment’ Case of Former Sillajen CEO Moon Eun-sang Retried in 2nd Instance... Supreme Court Says "Miscalculation of Embezzlement Amount"

First Trial: 5 Years Imprisonment and 35 Billion KRW Fine → Second Trial: Reduced to 5 Years Imprisonment and 1 Billion KRW Fine
Supreme Court: "No Payment of Acquisition Price, Company Burdened with Private Loan Repayment Obligation... 35 Billion KRW Loss"

Moon Eun-sang, former CEO of SillaJen
[Photo by Yonhap News]

[Asia Economy Reporter Heo Kyung-jun] Former ShillaJen CEO Moon Eun-sang, who was indicted on charges of illicit gains through 'fund rotation' using a paper company, will face a retrial in the appellate court.

The Supreme Court's First Division (Presiding Justice Noh Tae-ak) on the 30th overturned the lower court's ruling that sentenced Moon to five years in prison and a fine of 1 billion KRW on charges of violating the Capital Markets Act and breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes, and remanded the case to the Seoul High Court.

The Supreme Court pointed out that it is difficult to calculate the amount of illicit gains obtained through fraudulent means under the Capital Markets Act, and that the second trial's decision, which reduced the 35 billion KRW fine imposed by the first trial, was incorrect.

Moon was prosecuted for acquiring approximately 35 billion KRW worth of ShillaJen's bonds with warrants (BW) through a 'fund rotation' scheme using a paper company, thereby obtaining illicit gains. BW refers to bonds that grant the holder the right to purchase the issuing company's shares at a predetermined price within a certain period after issuance.

The first trial sentenced Moon to five years in prison and a fine of 35 billion KRW. The court at the time stated, "As the CEO of ShillaJen, he led the issuance of BWs through fund rotation, causing serious damage and confusion to ShillaJen and the capital market," and added, "Furthermore, he gained enormous profits by exercising the warrants."

It continued, "Despite this, the defendant shifted responsibility to others throughout the trial process and failed to reach genuine reflection," and criticized, "There is a need for strict punishment of fraudulent unfair trading crimes." Moon, who had been on bail and tried without detention, was taken into custody following the prison sentence.

The appellate court also sentenced him to five years in prison but significantly reduced the fine to 1 billion KRW. The appellate court explained the sentencing by stating, "The defendant took considerable investment risks while being confident in the success potential of Pexa-Vec (an immuno-oncology drug candidate developed by ShillaJen), and the BW issuance structure was fully disclosed during the listing review, so ShillaJen's listing cannot be solely attributed to the defendant's violation of the Capital Markets Act," adding, "Investors' losses ultimately stemmed from Pexa-Vec's clinical failure, and it is difficult to hold the defendant entirely responsible for the clinical failure."

However, the Supreme Court held a different view. It stated that when BWs are issued without the actual payment of the subscription price, unless there are special circumstances, the person responsible for the issuance of the BWs must be considered to have violated their duty of care by failing to ensure that the subscription price is fully paid and effectively attributed to the company.

The court judged, "In substance, by issuing and subscribing to BWs worth 35 billion KRW without actual payment of the subscription price, the defendant obtained a profit equivalent to the bond value of 35 billion KRW, caused the company to bear the bond repayment obligation, and inflicted a loss of 35 billion KRW on the company by failing to acquire the corresponding subscription price."

This content was produced with the assistance of AI translation services.