[Invest&Law] "38 Billion Won Fine for Duplicate Short Selling Orders Is Illegal"

The Securities and Futures Commission (SFC) under the Financial Services Commission imposed a fine of over 3.8 billion KRW for illegal short selling, but a court has ruled that the fine must be canceled. The court found that the reason for the penalty regarding the duplicated submissions was not recognized, yet the fine amount was calculated by including that portion, which constituted an abuse and deviation of discretion, and therefore must be annulled.

The Administrative Court of Seoul, Administrative Division 4 (Presiding Judge Kim Jeong-jung) ruled in favor of the plaintiff on the 8th in the fine cancellation lawsuit (2023GuHap67897) filed by ESK Asset Management against the SFC.

Legal Newspaper

Last March, the SFC imposed a fine of 3.874 billion KRW based on an order amount of approximately 25.1 billion KRW, alleging that ESK Asset Management sold short 210,744 shares of EcoPro HN worth about 25.1 billion KRW without borrowing. Dissatisfied with this, ESK Asset Management filed a lawsuit claiming that there were issues with the grounds for the penalty and that the discretion was abused and exceeded.

The court recognized the grounds for the penalty only for 175,000 shares among the shares subject to the penalty and found that the grounds for the duplicated submitted shares were not recognized. Therefore, the court judged that the SFC’s penalty was an abuse and deviation of discretion and must be entirely canceled. The court stated, “On August 10, 2021, around 8:30 a.m., a bid was submitted for 35,744 shares, but the bid was canceled due to an error by an overseas brokerage firm, and at around 2:58 p.m. on the same day, a bid for the duplicated shares was resubmitted. From ESK’s perspective, it could have only expected to submit one bid for the same shares on the same business day, and it was unlikely to expect submitting two bids.”

It continued, “Only the portion concerning 175,000 shares among the penalty shares is recognized as grounds for the penalty, and the portion concerning the duplicated 35,744 shares is not recognized. Therefore, although the short selling order amount was about 20.3 billion KRW, the fine amount was calculated on the premise that the order amount was about 25.1 billion KRW, making this penalty illegal.”

Reporter Han Su-hyun, Law Times

※This article is based on content supplied by Law Times.