[Invest&Law] STX Bunsik Accounting Fraud Case Dismissed... "Need to Enhance Effectiveness of Securities Class Actions"

Dismissed in First Trial After 9 Years of Litigation
"Only 14 Cases Since System Introduction... Effectiveness Must Be Improved"

Amid the first trial court's dismissal ruling nine years after the securities class action lawsuit was filed in the 'STX Shipbuilding and Marine Engineering accounting fraud' case, experts continue to point out the need to enhance the effectiveness of securities class actions, which have been in place since 2005.

According to the legal community on the 18th, on the 13th, the 17th Civil Division of the Seoul Central District Court dismissed the securities class action lawsuit filed by six plaintiffs, including Mr. Kim, against former STX Group Chairman Kang Deok-su and others. A dismissal means ending the trial without examining the merits when the lawsuit does not meet the requirements or the claims are not subject to judgment.

Previously, STX Shipbuilding and Marine Engineering was embroiled in an accounting fraud scandal related to its '2013 business report,' leading to a trading suspension and delisting process that year. Investors in STX Shipbuilding and Marine Engineering stocks, including Mr. Kim, requested court approval for a securities class action lawsuit in 2015. This case is known as the largest securities class action in history, with about 20,000 victims and total damages estimated at around 100 billion KRW.

Securities class actions require court approval to initiate the lawsuit because the judgment affects many victims who did not participate in the lawsuit. It took eight years to obtain approval in this case. In 2021, the Seoul Central District Court denied the securities class action. Last year, the Seoul High Court accepted Mr. Kim's appeal and overturned the decision, and in August of the same year, the Supreme Court confirmed the lawsuit approval. The first trial court completed five rounds of hearings by October and announced it would review issues such as duplicate names on the list of parties involved until the sentencing date. However, it ultimately concluded with a dismissal.

Experts emphasize the need to enhance the effectiveness of securities class actions to promptly remedy victims and regulate the private gain activities of corporate groups.

Cho Sung-ik, head of the Industry and Market Policy Research Department at KDI, said at the recent '2024 KDI Conference,' "Since the mid-2000s, during the succession process of management rights in large business groups, unfair support acts toward the second and third generations have been observed, creating a social atmosphere demanding regulation of private gain activities." He added, "General shareholders can regulate private gain activities by filing injunctions or damage compensation lawsuits."

He continued, "However, the benefits gained from lawsuits are not significant compared to expected profits," and said, "The effectiveness of class actions should be enhanced to strengthen the regulatory capabilities of general shareholders."

In fact, only 14 securities class action lawsuits have been filed in about 20 years since their introduction in 2005, and most took more than five years to obtain lawsuit approval. Cases filed against Osstem Implant in January last year (false business report) and against Pado and securities firms in March this year (false securities registration and investment prospectus) are currently undergoing lawsuit approval procedures.

A legal community official said, "Because securities class actions proceed through up to six levels of approval procedures, ordinary people often do not even dare to file lawsuits," adding, "The court also feels a significant burden in estimating the number of victims and the scale of damages, so systems or organizations to support this should be established."

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