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XIV.Material penalty
The Securites and Exchange Act provides for criminal, administrative and civil liabilities for violation of laws and regulations:
- Criminal liability: A person who commits any of the following offenses will be imprisoned, detained and/or fined:
- Article 171 of the Securities and Exchange Act:
- Article 20, Paragraphs 1 and 2; Article 155, Paragraphs 1 and 2; or Article 157-1, Paragraphs 1 and 2, of the Securities and Exchange Act, are violated
- A director or supervisor directly or indirectly causes the company to conduct transactions to its disadvantage and not in the normal course of operation, thus causing substantial damage to the company.
- A director or supervisor acts contrary to its duties or misappropriates company assets with intent to procure a benefit for itself or for a third person.
- Article 174 of the Securities and Exchange Act:
- Article 30 of the Securities and Exchange Act, which requires an issuer to submit a prospectus in addition to items required by the Company Act in its application for approval to publicly offer and issue securities, is violated.
- False information is made and disseminated to the public with regard to the market value of securities, or with regard to the material aspects of the approved public offering.
- A prospectus contains false information or omissions in its required contents, in which case the issuer or its responsible person or employees shall be held liable to any bona fide counterpart for damage suffered, with no exemption allowed.
- The account books, forms/statements, documents, or other reference or report materials produced pursuant to an FSC order contain false statements.
- The account books, forms/statements, vouchers, financial reports or any other business documents produced pursuant to the Securities and Exchange Act or FSC orders issued pursuant thereto contain false statements.
- The managerial officer or chief accounting officer who signs or chops the financial report above makes false statements in the content of the financial report.
- An investment decision is made relating to an issuer or specific securities transactions based on false information and is disseminated on any newspapers and magazines, written materials, broadcasts, films or by other means.
- A directors loans company funds to another person, uses company assets to provide security or a guarantee for another person, or endorses a negotiable instrument in violation of laws and regulations or the articles of incorporation or beyond the scope authorized by the board of directors, causing substantial damage to the company.
- Working papers or relevant records or documents are forged, altered, destroyed, concealed or obscured with intent to impede inspection by the competent authority or investigation by a judicial agency.
- Article 175 of the Securities and Exchange Act:
- A company repurchases its own shares in violation of Article 28-2, Paragraph 1 of the Company Act.
- Article 43-1, Paragraph 3, and Article 43-5, Paragraphs 2 and 3 of the Securities and Exchange Act governing FSC public tender offers, or Article 43-6, Paragraph 1 of the Securities and Exchange Act governing private placements, is violated.
- Article 177 of the Securities and Exchange Act:
- Securities are not delivered within the prescribed time limit, as in violation of Article 34 of the Securities and Exchange Act.
- Listed securities are not traded on a centralized securities exchange market, as in violation of Article 150 of the Securities and Exchange Act.
- Article 179 of the Securities and Exchange Act:
It is generally held that no criminal punishment may be meted out against a juristic person, therefore, the punishment should shift to its responsible person when it is to be punished.
- Administrative liability: A person who commits any of the following is fined pursuant to Article 178 of the Securities and Exchange Act
- Article 14, Paragraph 3 of the Securities and Exchange Act, which states the following, is violated: Financial reports shall be signed or stamped with the seal of the chairperson, managerial officers, and accounting officers, who shall also produce a declaration that the report contains no misrepresentations or nondisclosures.
- Article 14-1, Paragraphs 1 and 3 of the Securities and Exchange Act, which state that financial and operational internal control systems shall be established and that an Internal Control System Statement shall be filed with the competent authority within four months of the close of each fiscal year, are violated.
- No independent directors are appointed and no by-election of independent directors is held, as in violation of Article 14-2, Paragraphs 1 and 5 of the Securities and Exchange Act.
- Article 14-3 of the Securities and Exchange Act, which states that in the event of a company that has selected independent directors, the matters listed shall be submitted to the board of directors for approval by resolution unless approval has been obtained from the competent authority, is violated.
- Article 14-4, Paragraphs 1 and 2 of the Securities and Exchange Act, which state the following, are violated: A company that has issued stock in accordance with this Act shall establish either an audit committee or a supervisor. The FSC may, however, in view of the company's scale, type of operations, or other essential considerations, order it to establish an audit committee in lieu of a supervisor. The audit committee shall be composed of the entire number of independent directors. It shall not be fewer than three persons in number, one of whom shall be convener, and at least one of whom shall have accounting or financial expertise.
- Article 14-5, Paragraphs 1 and 2 of the Securities and Exchange Act, which state the following, are violated: For a company that has issued stock in accordance with this Act and established an audit committee, the matters listed shall be subject to the consent of one-half or more of all audit committee members and be submitted to the board of directors for a resolution.
- The restrictions on stock transfer in Article 22-2, Paragraphs 1 and 2 of the Securities and Exchange Act are violated.
- Article 25 of the Securities and Exchange Act governing the filing of stock transfers, changes and pledges is violated.
- The restrictions in Article 26-1 of the Securities and Exchange Act governing shareholders' meeting and extempore motions are violated.
- The board of directors numbers less than five persons or no by-election is held when the number of directors falls below five, as in violation of Article 26-3, Paragraphs 1 and 7 of the Securities and Exchange Act.
- Article 36, Paragraph 4 of the Securities and Exchange Act providing for periodic filing and publication of financial reports and material information is violated.
- Article 41 of the Securities and Exchange Act, which states that the FSC may order an issuer to set aside a certain proportion of its earnings as special reserve in addition to the allocation for legal reserve required by law, is violated.
- Article 43-1, Paragraph 1 of the Securities and Exchange Act, which states the following, is violated: Any person who acquires, either individually or jointly with other persons, more than ten percent of the total issued shares of a public company shall file a statement with the FSC within ten days after such acquisition, stating the purpose and the sources of funds for the purchase of shares and any other matters required to be disclosed by the FSC; such persons shall file timely amendment when there are changes in the matters reported.
- Article 43-6, Paragraphs 5 to 7 of the Securities and Exchange Act governing private placement of securities are violated.
- The company refuses, obstructs or evades FSC inspections or fails to furnish related information requested by the FSC.
- The company fails to produce, file, publish, make available or retain related information requested by the FSC.
- The provisions of Article 25-1 of the Securities and Exchange Act governing the qualifications of proxy solicitors, proxy agents and persons handling proxy solicitation matters on behalf of an issuer, methods of solicitation and acquisition, and refusal to provide FSC requested information, are violated.
- The rules regulating the minimum percentage to be held by the directors and supervisors of a publicly held company, prescribed by the FSC pursuant to Article 26, Paragraph 2 of the Securities and Exchange Act, are violated.
- No rules for the conduct of meetings are established pursuant to Article 26-3, Paragraph 8 of the Securities and Exchange Act; provisions stipulated by the FSC pursuant to said paragraph governing the content of deliberations, procedures, matters to be recorded in meeting minutes and public announcement etc. are violated; or rules established by the FSC pursuant to Article 36-1 of the Securities and Exchange Act governing the applicable scope, work procedures, required public announcements and required filings for major financial or operational actions such as acquisition or disposal of assets, engaging in derivatives trading, extension of monetary loans to others, endorsements or guarantees for others, and disclosure of financial projections, are violated.
- Article 28-2, Paragraphs 2, 4 to 7 of the Securities and Exchange Act or FSC rules governing the procedures, prices, quantitites, ways of repurchase, methods of assignment, and matters to be filed and published, are violated.
- Article 43-2, Paragraph 1; Article 43-3, Paragraph 1; or Article 43-5, Paragraph 1 of the Securities and Exchange Act, or FSC rules established pursuant to Article 43-1, Paragraph 4 of the Securities and Exchange Act governing the scope, conditions, periods, interested parties, and matters to be filed and published in respect of the acquisition of securities, are violated.
- Civil liability:
- Article 20, Paragraph 3 of the Securities and Exchange Act:
Anyone who during the public offering, issuing, private placement, or trading of securitie has made a misrepresentation, committed fraud, or performed any other acts which are sufficient to mislead other persons, shall be held liable for damages sustained by bona fide purchasers or sellers of the said securities.
- Article 20-1 of the Securities and Exchange Act:
When the essential contents of the financial reports or financial or business documents in Article 20II of the Securities and Exchange Act, or those of the financial reports filed or publicly disclosed pursuant to Article 36I of said act, contain misrepresentations or nondisclosures, liability for damages suffered by bona fide purchasers, sellers, or holders of securities issued by the issuer shall be borne.
- The prospectus contains misrepresentations or nondisclosures, as in violation of Article 32 of the Securities and Exchange Act.
- A public tender offer violates the relevant provisions under Articles 43-2 and 43-3 of the Securities and Exchange Act.
- Article 155, Paragraph 3 of the Securities and Exchange Act:
Anyonen who manipulates and affects the market order or trading prices of securities on the centralized securities exchange market shall be held liable to compensate bona fide purchasers or sellers of said securities for damage suffered.
- Article 157 of the Securities and Exchange Act:
- In the event any director, supervisor, managerial officer, or shareholder holding more than 10% of the shares of a company sells the listed securities within six months after its acquisition, or repurchase the securities within six months after its sale, the company shall claim for the disgorgement of any profit realized from the sale and purchase.
- Profit to be disgorged is calculated by subtracting the lowest purchasing price from the highest selling price pursuant to Article 11, Paragrpah 2 of the Securities and Exchange Act Enforcement Rules.
- Article 157-1 of the Securities and Exchange Act:
- Upon knowing of any information that will have a material impact on the price of the securities of the issuing company, after the information is precise, and prior to the public disclosure of such information or within 18 hours after its public disclosure, the following persons may not purchase or sell shares of the company that are listed on an exchange or an over-the-counter market, or any other equity-type security of the company: a. director, supervisor, and/or managerial officer of the company, and/or a natural person designated to exercise powers as representative pursuant to Article 27, Paragraph 1 of the Company Act; b. shareholders holding more than 10% of the shares of the company; c. any person who has learned the information by reason of occupational or controlling relationship; d. a person who, though no longer among those listed in [one of ] the preceding three subparagraphs, has only lost such status within the last six months; e. any person who has learned the information from any of the persons named in the preceding four subparagraphs. In calculating the shareholding of the persons in Subparagraphs a and b above, shares held by their spouse and minors and those held in another person's name are included.
- Violators shall be held liable, to trading counterparts who on the day of the violation undertook the opposite-side trade with bona fide intent, for damages in the amount of the difference between the buy or sell price and the average closing price for ten business days after the date of public disclosure.
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