[Invest&Law] STX Bunsik Accounting Fraud Securities Class Action, First Trial Verdict Expected After 9 Years

Court: "December 23 Set for First Trial Verdict"
Partial Victory for Small Shareholders Confirmed in Previous General Lawsuit

The first trial verdict in the securities class action lawsuit related to the 'STX Shipbuilding and Marine Engineering accounting fraud case' is expected to be announced by the end of this year, nearly nine years after the lawsuit proceedings began.

According to the legal community on the 29th, on the 25th, the Civil Division 17 of the Seoul Central District Court set the first trial verdict date for December 13 for the securities class action lawsuit filed by six plaintiffs including Mr. Kim against former STX Group Chairman Kang Deok-su and Samjong Accounting Corporation.

Previously, STX Shipbuilding and Marine Engineering disclosed its '2013 Business Report' in March 2014, and Samjong Accounting Corporation, as the auditor, expressed the opinion that "the business report was properly prepared." Subsequently, STX Shipbuilding and Marine Engineering became embroiled in an accounting fraud scandal, leading to the suspension of its stock trading on February 6 of that year and delisting on April 15. Investors in STX Shipbuilding and Marine Engineering stocks, including Mr. Kim, filed a civil lawsuit in March 2015 and requested the court to permit a securities class action lawsuit.

A securities class action lawsuit is a damage compensation claim lawsuit in which some of the many victims participate as representative parties. Since the trial result affects many non-participating victims, unlike general civil lawsuits, court approval to initiate the lawsuit is required. This case is known as the largest securities class action lawsuit to date, with approximately 20,000 victims and total damages amounting to around 100 billion KRW.

However, as the criminal trial against former Chairman Kang and the approval process for the securities class action lawsuit prolonged, Mr. Kim and others had to wait eight years just to start the trial. Five years after the case was filed, in 2021, the Seoul Central District Court denied the securities class action lawsuit, but last year the Seoul High Court accepted Mr. Kim’s appeal and overturned the decision. In August of the same year, the Supreme Court dismissed appeals from Samjong Accounting Corporation and others, confirming the approval of the securities class action lawsuit.

After approval, the Civil Division 17 of the Seoul Central District Court held a total of five hearings by the 25th. In court, whether there was duplication in the list of lawsuit parties became a point of contention, but the court decided to first conclude the hearings and review the issues by the verdict date. Depending on the court’s judgment, the hearing process may resume.

Meanwhile, the Supreme Court has already ruled in favor of minority shareholders in a similar general civil lawsuit. In 2022, the Supreme Court finalized a ruling ordering former STX Chairman Kang, Samjong Accounting Corporation, and others to pay approximately 5.5 billion KRW to about 300 minority shareholders in a general damage compensation lawsuit. The responsibility ratio for damages was set at 60% for former Chairman Kang and 30% for Samjong Accounting Corporation.

At that time, the Supreme Court acknowledged that STX Shipbuilding and Marine Engineering committed accounting fraud by overstating gross profit, among other methods. The court stated, "The CEO had the duty to prepare financial statements and business reports and to monitor and supervise accounting fraud," and "The accounting firm should not have blindly trusted the submitted materials without careful verification. Considering the industry characteristics and management conditions, if there are aspects prone to fraud or errors in the accounting process, the audit procedures should be conducted more strictly than usual."

Although former Chairman Kang was acquitted in the criminal case related to the accounting fraud charges, the Supreme Court judged that "the neglect of the duty to monitor accounting fraud is acknowledged" and that recognizing compensation liability does not contradict the criminal case conclusion. If a similar conclusion is reached in this securities class action lawsuit, former Chairman Kang and Samjong Accounting Corporation may each have to pay hundreds of billions of KRW in damages.

Separately, former Chairman Kang was sentenced to three years in prison with a four-year probation in 2021 for embezzlement and improper support of a personal company, apart from the accounting fraud charges. The following year, on Liberation Day, he was granted a special pardon according to the government’s decision to "maximize the effect of overcoming the economic crisis through carefully selected pardons of key economic figures."

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