"7 Years Just to Start Trial... Blood, Sweat, and Tears, All the Elderly Have Passed Away" [War Against Stock Manipulation]

④-⑴ Interview with Dongyang Incident Victim Seowon Il
Collective Securities Lawsuit Took 6 Years to Get Approval
"Lawsuit System Must Change to Prevent Victims Like Me"

"Well, now that you ask, what kind of story do you want to hear? What kind of heartbreaking story do you want to hear?"

On the 13th, in response to Asia Economy's interview request, Mr. Seo Won-il (67), a victim of the 'Dongyang Group Incident,' expressed his frustration over the phone. Mr. Seo is the lead plaintiff in the securities-related class action lawsuit concerning the 'Dongyang Incident.' When asked about the progress of the lawsuit, he sighed deeply. "I never thought a single case would drag on this long. All the older folks back then have passed away."

The Dongyang Incident that broke out in 2013... "Never expected it to drag on for over 10 years"

The Dongyang Incident refers to the 2013 case where Dongyang Group concealed the risk of bankruptcy and sold corporate bonds and commercial papers (CP) through Dongyang Securities, causing about 41,000 investors to suffer losses amounting to approximately 1.7 trillion KRW. The root cause was former Dongyang Group Chairman Hyun Jeon-hyeon’s reckless issuance of corporate bonds and CPs to maintain control over the company.

Mr. Seo, a professional construction worker, also entrusted his money following the recommendation of a securities firm employee. "Due to the nature of the construction business, I had to purchase local bonds with interest rates of 1.5~2%. Most of the bonds I purchased were entrusted to securities firms, and the first place I entrusted was Dongyang Securities. Then, a securities firm employee said, 'Sir, our corporate bonds have a high interest rate, how about purchasing them? Interest is paid every three months,' so I bought the bonds."

Later, major affiliates of Dongyang Group failed to repay the matured corporate bond debts and applied for corporate rehabilitation procedures (court receivership). The Financial Supervisory Service recognized about 67% of the 35,754 investment cases as incomplete sales.

Mr. Seo, who invested about 400 million KRW, along with 1,254 other victims, filed a securities class action lawsuit worth about 135 billion KRW against Yuanta Securities, which acquired Dongyang Securities in June 2014. A securities class action lawsuit is a damage compensation claim lawsuit in which one or more victims act as lead plaintiffs among multiple victims. Since the court's judgment affects other victims who did not participate in the lawsuit, unlike ordinary lawsuits, court approval is required to initiate the lawsuit.

However, the class action lawsuit did not open until Mr. Seo, who was in his 50s, reached his mid-60s. In 2016, the Seoul Central District Court and in 2017, the Seoul High Court refused to approve the lawsuit, stating that "the representativeness of some plaintiffs cannot be recognized." After appeals and re-appeals by the victims, in 2018, the Supreme Court ruled that "even if some are not members, as long as other lead plaintiffs remain members, the class action lawsuit must be approved." When the Seoul High Court approved the lawsuit accordingly, Yuanta Securities filed a re-appeal. The Supreme Court dismissed it in 2020 and confirmed the approval decision.

Mr. Seo said that was the moment when victims’ expectations were highest. "The long-awaited approval was granted. Most victims thought, 'Now it's done. The trial will start, and the path to compensation will open.'" Thus, in October 2021, the first trial of the securities class action lawsuit was held at the Seoul Central District Court. It was seven years after the victims filed the lawsuit.

What returned was a receipt for litigation costs... "May financial victims no longer shed tears"

However, the lawsuit results made the victims cry twice. In January last year, the first trial dismissed the victims' claims, stating, "There is no fault in falsely or omitting important matters in the securities registration statement, etc." The second trial in January also upheld this judgment. The reasoning was that a reasonable investor could have read the securities registration statement and sufficiently recognized Dongyang's crisis situation at the time.

As the lawsuit prolonged, litigation costs such as attorney fees and court fees (fees for court services) ballooned. Since this lawsuit involved many plaintiffs and large claim amounts, the court fees alone reached 50 million KRW for the first trial and 67.5 million KRW for the second trial. During the second trial, Mr. Seo’s side appealed, "The lead plaintiff conducts the lawsuit not for personal gain but for all, so litigation costs should be borne jointly by all members who did not opt out of the lawsuit." The court rejected this, stating, "It is unfair to make members who realistically did not receive notification of the lawsuit approval decision and were unaware of the lawsuit bear litigation costs due to losing."

Mr. Seo criticized the length of time taken to decide whether to approve the class action lawsuit itself. "If this was a lawsuit that would end like this, I don't know why they dragged out the approval process so long. This issue must be fixed for the sake of those who will file class action lawsuits in Korea in the future. I can understand if the lawsuit period itself is a bit long. But why hold on to the approval procedure for so long? How much are the court fees for the first and second trials alone? Where else do you hear such ridiculous stories?"

On October 9, 2013, in front of the Financial Supervisory Service in Yeongdeungpo-gu, Seoul, a victim wrapped their head and is in distress at the "Dongyang Incident Victims' Grand Rally."

He pointed out the responsibility not only of securities firms and banks but also of financial authorities. "If the Financial Services Commission or the Financial Supervisory Service properly addressed this at least once, securities firms and banks wouldn't do such things. The recent stock-linked securities (ELS) incident was the same. Whether 10 years ago or now, they say 'there is no problem until Korea collapses' and sell them. I chased the Financial Supervisory Service and the Financial Services Commission very fiercely in 2013-2014, asking them to do something for the victims, to provide relief."

Mr. Seo ended the interview hoping that no more victims like him would appear. "How are the victims living now? The older people have all passed away. I really wanted to say nothing and just hang up the phone. It was a memory I did not want to remember, but please make sure financial victims no longer shed tears."

Meanwhile, former Chairman Hyun Jeon-hyeon was tried for fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and was sentenced to seven years in prison by the Supreme Court. He was released upon completion of his sentence in 2021.

Editor's NoteThe 'Ra Deok-yeon Gate,' the largest stock manipulation crime in history (with a total illegal gain of 730.5 billion KRW), is approaching its one-year anniversary (April 24, 2023), yet the victims' nightmare has not ended. There is no effective victim remedy in the Korean capital market. Litigation is the only answer, but due to cost burdens and difficulties in proving damages, many cannot even attempt it. The amendment of the Capital Markets Act, which supplemented the limitations of criminal punishment and introduced effective monetary sanctions due to the 'Ra Deok-yeon Gate,' is significant. However, to eradicate securities crimes that continue to increase in various forms, it is necessary to establish a system that can efficiently detect and investigate them and to improve additional systems for swift and strict sanctions. The Asia Economy Securities Capital Market Department Special Investigation Team examines advanced systems in overseas capital markets and reviews the challenges and directions for our market to suppress securities crimes. Since intelligent and organized criminal acts occur, we also seek effective measures for investor damage relief.

We plan to focus on various perspectives regarding unfair trading such as insider trading, fraudulent transactions, market manipulation, and reporting violations. We will strive to prepare comprehensive countermeasures to eradicate capital market crimes. Please send tips to (lsa@asiae.co.kr). We will investigate and report thoroughly.

▲Team Leader Seon-ae Lee, Manager △Min-young Kim, Yun-joo Hwang, Min-young Cha, Dae-hyun Kim, Reporters

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