The Taiwan High Court rendered the 107-Jin-Shang-Yi-8 Decision of August 22, 2019 (hereinafter, the “Decision”), holding that the operation of the securities business requires the actor to schedule and repetitively carry out the same type of business with an intent to generate profits, and that it is not true that a single resale of shares to specific persons can be relied on to conclude that this is an act of operating the securities trading business.
According to the facts underlying this Decision, Defendants A and B failed to obtain the approval of the Financial Supervisory Commission, and in 2011, Defendant A informed individual C of his intention to share investment opportunities to external parties. Individual C relayed the message to his friends D and E. Later, Defendant A recommended the investment in Company A in a dinner attended by C’s friends. Individuals D and E subsequently conveyed their intent to purchase Company A’s shares from Defendant A through individual C. Defendant A instructed Defendant B to contact individuals D and E and ask them to separately wire payment to the account of Company B, whose actual legal representative was Defendant B, at Bank SinoPac in May 2011. Defendants A and B then delivered the information about individuals D and E to Company A for incorporation into its shareholders’ roster and issued a certificate for the holding of 400,000 shares to each of individuals D and E. The prosecutor held that Defendants A and B should be penalized and prosecuted in accordance with Article 175 of the Securities and Exchange Law for their alleged violation of Article 44, Paragraph 1 and Article 22, Paragraphs 1 and 3 of the same law. Since the first instance decision acquitted the Defendants, an appeal was filed.
According to the Decision, since the wording “public placement and issuance” was deleted from Article 6, Paragraph 1 of the Securities and Exchange Law as amended on July 19, 2000, a company’s stock is deemed “securities” within the meaning of the Securities and Exchange Law regardless of whether it is publicly traded. The Ministry of Finance decided, pursuant to the authorization under such paragraph, that “overseas stocks, corporate bonds, government bonds, beneficiary certificates and other securities of investment nature which are raised, issued, traded or subject to investment services involving the above securities within the territories of the Republic of China (ROC) shall be governed by securities laws and regulations of the ROC,” as indicated in the 76-Tai-Cai-Zheng-(2)-00900 Circular of September 12, 1987 and the Tai-Cai-Zheng-(2)-50778 Circular of February 1, 1992 from the Ministry of Finance. Therefore, overseas stocks are securities under Article 6, Paragraph 1 of the Securities and Exchange Law. Although Company A is not a listed or OTC-traded company and is a foreign company in Hong Kong and issued securities such as stocks of foreign companies, Company A is still governed by the Securities and Exchange Law of the ROC.
It was further pointed out in this Decision that according to the testimony of Company A’s legal representative testifying as a witness, Defendants A and B solicited others to invest in Company A’s shares or resold its shares without Company A’s authorization. Defendants A and B decided on their own to privately resell to individuals D and E the shares allotted to them for subscription. Therefore, Defendants A and B were not retained by Company A to sell its shares, and this has nothing to do with “brokerage,” “intermediary” or “agency.” Therefore, they could not be deemed to have engaged in an act of operating the “securities business.” Under Article 16, Subparagraph 2 of the Securities and Exchange Law, those who engage in “securities dealing and other relevant business approved by the competent authority” under Article 15, Subparagraph 2 of the Securities and Exchange Law shall be securities dealers. Therefore, what is regulated is the business scope of “securities dealers.” In addition, the so-called “operation of the securities business” requires the actor to engage in such business by scheduling and repetitively carrying out the same type of business with an intent to generate profits. It is not true that the trading of securities by the actors themselves will essentially constitute this offense. Otherwise, if a transfer of a company’s ownership or shares of a unlisted company between private individuals will constitute this offense, the issue of an overbroad scope of penalty will arise. Therefore, individual acts such as a single resale of Company A’s shares to specific persons by Defendants A and B through the referral of individual C should not be relied on as the sole basis for concluding that this is an act of operating the securities trading business. In addition, the Defendants’ invitation to specific individuals to participate in a dinner has nothing to do with an act of public placement through offerings or solicitation to nonspecific individuals via public announcement, advertisement, broadcast, videotex, the Internet, letter, telephone, visitation, inquiry, roadshow, seminar or any other mean. Therefore, the Defendants could not be found to have engaged in any act in violation of Article 22, Paragraphs 1 and 3 of the Securities and Exchange Law and the penalty should be imposed in accordance with Article 174, Paragraph 2 of the same law, instead. Hence, the appeal was rejected.