Nora Shih
The Taichung Branch of the Taiwan High Court rendered the 108-Su-Yi-68 Decision of November 29, 2019 (hereinafter, the “Decision”), holding that in case an actor distributes a stock via false information, even if such actor does not sell the stock to a victim personally, the fact of a joint fraud is still constituted.
According to the facts underlying this Decision, Defendant X was the actual legal representative of Company A, while B was a certified public accountant and C was an illegal wholesaler of non-listed stocks. Obviously knowing that Company A was in poor operating condition with a shortage of funds, and that the company’s stock no longer had distribution value in the market, the Defendants still negotiated to obtain Company A’s working capital by printing share certificates for money. As a result, B was responsible for preparing false financial reports so that X could print the company’s share certificates under the pretext of Company A’s capital injection before the stock was sold to C for a low price and for C’s resale to unwitting investors. C purchased the stock for around NT$5 per share, while B delivered the stock payment to X for C and obtained share certificates from X. Such share certificates were initially transferred and registered under the names of unwitting dummies. Investment roadshows were conducted by people working under C to claim that the company’s marketing plan and projections promised significant business revenue. In addition, false information important to general investors was distributed through paid advertisements to mislead investors into purchasing Company A’s stock in order to obtain stock payment by fraud. A separate criminal decision in a different case had been rendered to find that the Defendants had committed the offenses under Article 171, Paragraph 2 of the Securities and Exchange Law for their acts. The Plaintiff misbelieved that Company A had a decent business scale and excellent business results and profitability due to misinformation and purchased Company A’s stock at one time for NT$59 per share. Therefore, the Plaintiff requested that the Defendants compensate his loss.
According to the Decision, the Defendants admitted in a separate criminal procedure that they had in fact issued Company A’s stock (hereinafter, the “Stock at Issue”), paid journalists to spread false business information, and sold the Stock at Issue for NT$5 per share to C. Therefore, it is difficult to conclude that the Defendants did not know that Company A obviously did not have the investment value as advertised. It can be concluded that the Defendants’ false marketing of their company’s stock was an intentional effort to defraud others. Even if the Defendants did not personally sell the Stock at Issue to the Plaintiff and the Stock at Issue was resold to the Plaintiff via C, still the stock is a marketable security distributed to the public. Since the Defendants distributed the Stock at Issue by means of misinformation, they should have known that there would be people deceived into purchasing the stock. Such risk of violating the rights of others was created by the Defendants, who obviously were aware of the inevitability of the risk. Since the Defendants allowed continued distribution and resale of the Stock at Issue, their behavior still constituted a joint fraud.
It was further pointed out in this Decision that damages liabilities shall be assumed by those who wrongfully damage the rights of others intentionally or negligently under Article 184, Paragraph 1 of the Civil Code. The Defendants’ acts constituted offenses such as fraud under Article 171, Paragraph 2 of the Securities and Exchange Law and were indeed intentional and wrongful acts that damage the rights of others. In addition, the Plaintiff was injured after being deceived into purchasing the Stock at Issue as a result of the misinformation. In view of the causal relations between the Defendants’ tort and the Plaintiff’s damage, the Plaintiff’s assertion that the Defendants damaged his rights and the Plaintiff’s damages claim are well-grounded.